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As filed with the Securities and Exchange Commission on July 19, 2010
Securities Act Registration No. 333-165570
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
Form N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
Pre-Effective Amendment No. 3  x
Post-Effective Amendment No.   o
 
Horizon Technology Finance Corporation
(Exact name of Registrant as specified in its charter)
 
76 Batterson Park Road
Farmington, Connecticut 06032
(Address of Principal Executive Offices)
 
(860) 676-8654
(Registrant’s Telephone Number, Including Area Code)
 
Robert D. Pomeroy, Jr.
Chief Executive Officer
Horizon Technology Finance Corporation
76 Batterson Park Road
Farmington, Connecticut 06032
(Name and Address of Agent for Service)
 
Copies to:

Stephen C. Mahon, Esq. 	 	Valerie Ford Jacob, Esq.	
Squire, Sanders & Dempsey L.L.P. 	 	Paul D. Tropp, Esq.	
221 East Fourth Street, Suite 2900	 	Fried, Frank, Harris, Shriver & Jacobson LLP	
Cincinnati, Ohio 45202	 	One New York Plaza	
(513) 361-1200	 	New York, NY 10004	
(513) 361-1201 – Facsimile	 	(212) 859-8000	
 	 	(212) 859-4000 – Facsimile	

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box.   o
 
It is proposed that this filing will become effective (check the appropriate box)
 
o  When declared effective pursuant to section 8(c)
 
If appropriate, check the following box:
 
o  This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment][registration statement].
 
o  This form is filed to register additional securities for an offering pursuant to Rule 462 (b) under the Securities Act and the Securities Act registration number of the earlier effective registration statement for the same offering is          .

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

 	 	 	Proposed Maximum
	 	 	Amount of
	
 	 	 	Aggregate
	 	 	Registration
	
Title of Securities Being Registered	 	 	Offering Price(1)	 	 	Fee	
Common Stock, $0.001 par value per share	 	 	$125,000,000	 	 	$8,912.50(2)	

 	 	 	
(1)	 	Estimated pursuant to Rule 457(o) solely for the purpose of determining the registration fee.	
 	 	 	
(2)	 	Previously paid.	

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)
Preliminary Prospectus dated July 19, 2010
          Shares
Horizon Technology Finance Corporation
COMMON STOCK
 
We are a non-diversified closed-end management investment company that intends to file an election to be regulated as a business development company under the Investment Company Act of 1940. We were formed to continue and expand the business of Compass Horizon Funding Company LLC, a Delaware limited liability company, which commenced operations in March 2008 and will become our wholly owned subsidiary in connection with this offering. We are externally managed by Horizon Technology Finance Management LLC.
 
Our investment objective is to maximize our investment portfolio’s return by generating current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We make secured loans to development-stage companies in the technology, life science, healthcare information and services, and cleantech industries.
 
This is our initial public offering, and there is no prior public market for our shares. We are offering           shares of common stock, and the selling stockholder, Compass Horizon Partners, LP, is offering           shares of our common stock. We will not receive any of the net proceeds from the sale of shares of our common stock by Compass Horizon Partners, LP. Following the completion of this offering, Compass Horizon Partners, LP will own approximately     % of our common stock.
 
We anticipate that the initial public offering price will be between $      and $      per share. We have applied to have our common stock approved for listing on The NASDAQ Global Market under the symbol “HRZN.”
 
This prospectus contains important information you should know before investing in our common stock and should be retained for future reference. Upon completion of this offering, we will file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. Upon the closing of this offering, we will maintain a website at http://www.horizontechnologyfinancecorp.com and intend to make all of the foregoing information available, free of charge, on or through our website. You may also obtain such information by contacting us at 76 Batterson Park Road, Farmington, Connecticut 06032 or by calling us at (860) 676-8654. The Securities and Exchange Commission maintains a website at http://www.sec.gov where such information is available without charge. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus.
 
Investing in our common stock should be considered highly speculative and involves a high degree of risk. See “Risk Factors” beginning on page 16. This is our initial public offering, and there is no prior public market for our shares. Based on an assumed initial public offering price of $      per share (the mid-point of the range set forth herein), purchasers in this offering will experience immediate dilution of approximately $      per share. Shares of closed-end investment companies, including business development companies, frequently trade at a discount from their net asset value. If our shares trade at a discount to our net asset value, the risk of loss for purchasers in this offering may increase. See “Risk Factors — Risks Related to this Offering and our Common Stock — Investors in this offering will incur immediate dilution upon the closing of this offering” on page 34 and “Dilution” on page 48.

 	 	 	 	Sales Load
	 	Proceeds, Before Expenses, to
	 	 	
 	 	Price to
	 	(Underwriting Discount
	 	Horizon Technology
	 	Proceeds to Selling
	
 	 	Public	 	and Commissions)	 	Finance Corporation(1)	 	Stockholder(2)	
 	 	 	 	 	 	 	 	 	
Per Share	 	$       	 	$                    	 	$                         	 	$               	
Total	 	$       	 	$                    	 	$                         	 	$               	

(1)	 	We estimate that we will incur expenses of approximately $1.5 million in connection with this offering. Stockholders will indirectly bear such expenses as investors in Horizon Technology Finance Corporation.	
(2)	 	We will pay all offering expenses incident to the offer and sale of shares of our common stock in this offering by the selling stockholder (excluding underwriting discounts and commissions). We estimate that we will incur approximately $           of such expenses.	
 
The underwriters may also purchase up to an additional           shares of common stock from us at the public offering price, less the sales load, within 30 days of the date of this prospectus to cover any over-allotments. If the underwriters exercise this option in full, the total price to the public, sales load and proceeds will be $          , $          , and $          , respectively.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The underwriters expect to deliver the shares of common stock to purchasers on or about          , 2010.

Morgan Stanley	UBS Investment Bank	

Stifel Nicolaus Weisel
	 	
 	 Morgan Keegan & Company, Inc.
	 	
 	 RBC Capital Markets
	 	
 	BMO Capital Markets	
Lazard Capital Markets          Northland Capital Markets
The date of this prospectus is          , 2010

 
 
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date of this prospectus. Our business, financial condition and prospects may have changed since that date. We will update this prospectus to reflect material changes to the information contained herein. Additionally, there is no minimum offering requirement and, as a result, there is a risk that we could be undercapitalized after the completion of this offering.
 
TABLE OF CONTENTS

 	 	Page	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Prospectus Summary	 	 	1	 	 	 	 	 	
The Offering	 	 	10	 	 	 	 	 	
Fees and Expenses	 	 	14	 	 	 	 	 	
Risk Factors	 	 	16	 	 	 	 	 	
Cautionary Note Regarding Forward-Looking Statements	 	 	36	 	 	 	 	 	
Business Development Company and Regulated Investment Company Elections	 	 	37	 	 	 	 	 	
The Exchange Transaction	 	 	38	 	 	 	 	 	
Unaudited Pro Forma Condensed Consolidated Financial Information	 	 	39	 	 	 	 	 	
Use of Proceeds	 	 	45	 	 	 	 	 	
Distributions	 	 	46	 	 	 	 	 	
Capitalization	 	 	47	 	 	 	 	 	
Dilution	 	 	48	 	 	 	 	 	
Selected Financial and Other Data	 	 	49	 	 	 	 	 	
Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	50	 	 	 	 	 	
Business	 	 	63	 	 	 	 	 	
Portfolio Companies	 	 	77	 	 	 	 	 	
Senior Securities	 	 	83	 	 	 	 	 	
Management	 	 	84	 	 	 	 	 	
Certain Relationships and Related Transactions	 	 	91	 	 	 	 	 	
Our Advisor	 	 	92	 	 	 	 	 	
Investment Management and Administration Agreements	 	 	94	 	 	 	 	 	
Control Persons, Principal Stockholders and the Selling Stockholder	 	 	101	 	 	 	 	 	
Determination of Net Asset Value	 	 	103	 	 	 	 	 	
Dividend Reinvestment Plan	 	 	105	 	 	 	 	 	
Description of Capital Stock	 	 	107	 	 	 	 	 	
Shares Eligible for Future Sale	 	 	111	 	 	 	 	 	
Regulation	 	 	113	 	 	 	 	 	
Brokerage Allocations and Other Practices	 	 	120	 	 	 	 	 	
Material U.S. Federal Income Tax Considerations	 	 	121	 	 	 	 	 	
Underwriters	 	 	129	 	 	 	 	 	
Custodian, Transfer Agent, Dividend Paying Agent and Registrar	 	 	134	 	 	 	 	 	
Legal Matters	 	 	134	 	 	 	 	 	
Independent Registered Public Accounting Firm	 	 	134	 	 	 	 	 	
Where You Can Find More Information	 	 	134	 	 	 	 	 	
Index to Financial Statements	 	 	F-1	 	 	 	 	 	
 EX-99.D	
 EX-99.J	
 EX-99.K.4	
 EX-99.N	
 EX-99.R1	
 EX-99.R.2	

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PROSPECTUS SUMMARY
 
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to consider before investing in our common stock. You should read the entire prospectus carefully, including “Risk Factors.” Horizon Technology Finance Corporation, a Delaware corporation, was formed on March 16, 2010. The shares of common stock being offered to investors in this offering are shares of Horizon Technology Finance Corporation. Compass Horizon Funding Company LLC, a Delaware limited liability company, which we refer to as “Compass Horizon,” currently owns all of our portfolio investments and will become our wholly owned subsidiary in connection with this offering. Except where the context suggests otherwise, the terms “we,” “us,” “our” and “Company” refer to Compass Horizon and its consolidated subsidiary prior to the Share Exchange and to Horizon Technology Finance Corporation and its consolidated subsidiaries after the Share Exchange. See “The Exchange Transaction” in this prospectus for a more detailed discussion of the Share Exchange. In addition, we refer to Horizon Technology Finance Management LLC, a Delaware limited liability company, as “HTFM,” our “Advisor” or our “Administrator.”
 
From the date of its organization through the date of this prospectus, all of the outstanding limited liability company interests in Compass Horizon have been owned by its members, Compass Horizon Partners, LP, an exempted limited partnership registered in Bermuda which we refer to as “CHP,” and HTF-CHF Holdings LLC, a Delaware limited liability company which we refer to as “HTF-CHF.” Collectively, we refer to CHP and HTF-CHF as the “Compass Horizon Owners.” CHP is the selling stockholder in this offering.
 
Our Company
 
We are an externally-managed, non-diversified closed-end management investment company that intends to file an election to be regulated as a business development company under the Investment Company Act of 1940, as amended, which we refer to as the 1940 Act. In addition, we intend to elect to be treated, and intend to qualify, as a regulated investment company, frequently referred to as a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code,” commencing with our taxable year ending on December 31, 2010. We were formed to continue and expand the business of Compass Horizon which was formed in January 2008 and commenced operations in March 2008 and which will become our wholly owned subsidiary in connection with this offering. Our Advisor manages our day-to-day operations and also provides all administrative services necessary for us to operate. We invest in development-stage companies in the technology, life science, healthcare information and services, and cleantech industries, which we refer to as our “Target Industries.” Our investment objective is to generate current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We make secured loans, which we refer to as “Technology Loans,” to development-stage companies backed by established venture capital and private equity firms in our Target Industries, which we refer to as “Technology Lending.” To a limited extent, we also selectively lend to publicly traded companies in our Target Industries. See “Business — General” on page 63 for more information about us.
 
Our existing loan portfolio will continue to generate revenue for us. We believe our existing investment portfolio has performed well since its inception notwithstanding the economic downturn starting in 2008 and continuing through 2009. With the improvement in the broader economy in 2010, we continue to experience favorable portfolio quality and outcomes with no realized losses (charge-offs) in our loan portfolio since we commenced operations in March 2008. Our existing portfolio of investments and loan commitments provides the following benefits:

 	• 	Interest income from the portfolio will provide immediate income and cash flow allowing for potential near term dividends to our stockholders;	
 	 	 	
 	• 	Capital gains from warrants to purchase either common stock or preferred stock received from our existing investments are expected to be realized sooner than if we were beginning our initial investment operations without an existing portfolio of earning assets; and	
 	 	 	
 	• 	Warrants to purchase either common stock or preferred stock issued to us through the economic downturn have exercise prices at relatively lower valuations due to the depressed equity and debt markets in 2008 and 2009.	

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Since our inception and through June 30, 2010, we have funded 48 portfolio companies and have invested $213.2 million in loans (including 13 loans that have been repaid). See our “Investment Summary” below. As of June 30, 2010, our total investment portfolio consisted of 35 loans which totaled $141.9 million and our members’ capital was $64.6 million. As of June 30, 2010, our debt portfolio consisted of 34 secured term loans in the aggregate amount of $139.0 million, and one secured equipment loan in the aggregate amount of $2.9 million. All of our existing loans are secured by all or a portion of the tangible and intangible assets of the applicable portfolio company. The loans in our loan portfolio will generally not be rated by any rating agency. For the six months ended June 30, 2010, our loan portfolio had a dollar-weighted average annualized yield of approximately 13.7% (excluding any yield from warrants). As of June 30, 2010, our loan portfolio had a dollar-weighted average term of approximately 41 months from inception and a dollar-weighted average remaining term of approximately 31 months. In addition, we held warrants to purchase either common stock or preferred stock in 43 portfolio companies.
 
As of June 30, 2010, our loans had an original committed principal amount of between $1 million and $12 million, repayment terms of between 30 and 48 months, and bore current pay interest at annual interest rates of between 10% and 14%.
 
Pipeline
 
As of June 30, 2010, we had unfunded loan commitments to five companies, representing $9.3 million. While our portfolio companies have discretion whether to draw down such commitments, in some cases, the right of a company to draw down its commitment is subject to the portfolio company achieving specific milestones (e.g. an additional capital issuance or the completion of a clinical trial).
 
As of          , 2010, our Advisor had executed non-binding term sheets with prospective portfolio companies, representing $          . These proposed investments are subject to the completion of due diligence and our Advisor’s approval process, as well as negotiation of definitive documentation with the prospective portfolio companies and, as a result, may not result in completed investments. In addition, as of          , 2010, our Advisor had issued non-binding term sheets to           companies representing $      in potential loans. There is no guarantee that we will enter into any of these transactions.
 
Our Advisor and Its Personnel
 
Our investment activities are managed by HTFM, and we expect to continue to benefit from our Advisor’s ability to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate investments and manage our diversified portfolio of investments. In addition to the years that they have worked together both at our Advisor and prior to the formation by our Advisor of the Company, the members of our investment team have broad lending backgrounds, with substantial experience at a variety of commercial finance companies and private debt funds, and have developed a broad network of contacts within the venture capital and private equity community. This network of contacts provides a principal source of investment opportunities.
 
Our Advisor is led by five senior managers, including its two co-founders, Robert D. Pomeroy, Jr., our Chief Executive Officer, and Gerald A. Michaud, our President, each of whom has more than 23 years of experience in Technology Lending. Christopher M. Mathieu, our SVP and Chief Financial Officer, has more than 16 years of Technology Lending experience, and each of John C. Bombara, our SVP and General Counsel, and Daniel S. Devorsetz, our SVP and Chief Credit Officer, has more than nine years experience in Technology Lending. Our Advisor has an additional eight experienced professionals with marketing, legal, accounting, and portfolio management experience in Technology Lending. Our Advisor’s predecessor, Horizon Technology Finance, LLC, which we refer to as “HTF,” was formed in May 2003 by Messrs. Pomeroy and Michaud and began originating loans and investments in April 2004. All of the senior managers of our Advisor were employed by HTF prior to the formation of our Advisor. Our Advisor assumed all of the management operations of HTF. When we refer to our Advisor’s historical performance we include the performance of HTF.
 
Prior to the formation of HTF, members of senior management of our Advisor grew a Technology Lending business for GATX Ventures, Inc., a unit of GATX Corporation, founded and led Transamerica Technology Finance, a division of Transamerica Corporation, and were instrumental in the growth of Financing for Science International, Inc., a healthcare equipment leasing and Technology Lending company. We believe the personnel of our Advisor have achieved strong returns at each of these institutions throughout multiple business cycles.
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Our Strategy
 
Our investment objective is to maximize our investment portfolio’s total return by generating current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We believe our Advisor has demonstrated that its expertise in debt product development, transaction sourcing, its knowledge of our Target Industries, and its disciplined underwriting process create value for our investors. We believe that this expertise results in returns that exceed those typically available from more traditional commercial finance products (such as equipment leasing or middle market lending) while mitigating the risks typically associated with investments in development-stage technology companies.
 
To further implement our business strategy, our Advisor will continue to employ the following core strategies:

 	• 	Structured Investments in the Venture Capital and Private Equity Markets.  We make loans to development-stage companies within our Target Industries typically in the form of secured amortizing loans. The secured amortizing debt structure provides a lower risk strategy, as compared to equity investments, to participate in the emerging technology markets, because the debt structures we typically utilize provide collateral against the downside risk of loss, provide return of capital in a much shorter timeframe through current pay interest and amortization of loan principal and have a senior position in the capital structure to equity in the case of insolvency, wind down or bankruptcy. Unlike venture capital and private equity-backed investments, our investment returns and return of our capital do not require equity investment exits such as mergers and acquisitions or initial public offerings. Instead, we receive returns on our loans primarily through regularly scheduled payments of principal and interest and, if necessary, liquidation of the collateral supporting the loan. Only the potential gains from warrants are dependent upon exits.	
 	 	 	
 	• 	“Enterprise Value” Lending.  We take an enterprise value approach to the loan structuring and underwriting process. We secure a senior or subordinated lien position against the enterprise value of a portfolio company and generally our exposure is less than 25% of the enterprise value.	
 	 	 	
 	• 	Creative Products with Attractive Risk-Adjusted Pricing.  Each of our existing and prospective portfolio companies has its own unique funding needs for the capital provided from the proceeds of our Technology Loans. These funding needs include, but are not limited to, funds for additional development runways, funds to hire or retain sales staff, or funds to invest in research and development in order to reach important technical milestones in advance of raising additional equity. Our loans include current pay interest, commitment fees, pre-payment fees and non-utilization fees. We believe we have developed pricing tools, structuring techniques and valuation metrics that satisfy our portfolio companies’ requirements while mitigating risk and maximizing returns on our investments.	
 	 	 	
 	• 	Opportunity for Enhanced Returns.  To enhance our loan portfolio returns, in addition to interest and fees, we obtain warrants to purchase the equity of our portfolio companies, as additional consideration for making loans. The warrants we obtain generally include a “cashless exercise” provision to allow us to exercise these rights without requiring us to make any additional cash investment. Obtaining warrants in our portfolio companies has allowed us to participate in the equity appreciation of our portfolio companies which we expect will enable us to generate higher returns for our investors.	

 	• 	Direct Origination.  We originate transactions directly with technology, life science, healthcare information and services, and cleantech companies. Since it commenced operations in 2004, our Advisor has directly originated more than 115 transactions resulting in over $700 million of Technology Loans. These transactions were referred to our Advisor from a number of sources, including referrals from, or direct solicitation of, venture capital and private equity firms, portfolio company management teams, legal firms, accounting firms, investment banks and other lenders that represent companies within our Target Industries. Our Advisor has been the sole or lead originator in substantially all transactions in which the funds it managed have invested.	

 	• 	Disciplined and Balanced Underwriting and Portfolio Management.  We use a disciplined underwriting process that includes obtaining information validation from multiple sources, extensive knowledge of our Target Industries, comparable industry valuation metrics, and sophisticated financial analysis related to development-stage companies. Our Advisor’s due diligence on investment prospects includes obtaining and evaluating information on the prospective portfolio company’s technology, market opportunity,	

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 	 	management team, fund raising history, investor support, valuation considerations, financial condition and projections. We seek to balance our investment portfolio to reduce the risk of down market cycles associated with any particular industry or sector, development-stage or geographic area. Our Advisor employs a “hands on” approach to portfolio management requiring private portfolio companies to provide monthly financial information and to participate in regular updates on performance and future plans.	

 	• 	Use of Leverage; SBA Debenture Program.  We believe our existing credit facility provides us with a substantial amount of capital for deployment into new investment opportunities. Since its inception, Compass Horizon has employed leverage to increase its return on equity through a revolving credit facility provided by WestLB AG, which we refer to as the “Credit Facility.” The Credit Facility, pursuant to which we will be able to borrow up to $125 million upon completion of this offering, matures on March 4, 2015. The Credit Facility will begin to amortize on March 4, 2011. In addition, on July 14, 2009, our Advisor received a letter, which we refer to as the “Move Forward Letter,” from the Investment Division of the Small Business Administration, which we refer to as the “SBA,” that invited our Advisor to continue moving forward with the licensing of a small business investment company, or “SBIC.” To the extent that our Advisor receives an SBIC license, we expect to form an SBIC subsidiary which will issue SBA-guaranteed debentures at long-term fixed rates. Under the regulations applicable to SBICs, an SBIC generally may have outstanding debentures guaranteed by the SBA in an aggregate amount of up to twice its regulatory capital. In connection with the filing of the SBA license application, we will be applying for exemptive relief from the Securities and Exchange Commission, which we refer to as the “SEC,” to permit us to exclude the debt of the SBIC subsidiary guaranteed by the SBA from the consolidated asset coverage ratio, and, if obtained, will enable us to fund more investments with debt capital. However, there can be no assurance that we will be granted an SBIC license or that if granted it will be granted in a timely manner or that we will receive the exemptive relief from the SEC.	
 
See “Business — Our Strategy” on page 63 for more information about our strategy.
 
Market Opportunity
 
Our Target Industries.  We intend to focus our investments primarily in four key industries of the emerging technology market: technology, life science, healthcare information and services, and cleantech. The technology industry sectors we intend to focus on include communications, networking, wireless communications, data storage, software, cloud computing, semiconductor, internet and media, and consumer-related technologies. Life science sectors we intend to focus on include biotechnology, drug delivery, bioinformatics, and medical devices. Healthcare information and services sectors we intend to focus on include diagnostics, medical record services and software, and other healthcare related services and technologies that improve efficiency and quality of administered healthcare. Cleantech sectors we intend to focus on include alternative energy, water purification, energy efficiency, green building materials, and waste recycling.
 
Technology Lending.  We believe that Technology Lending has the potential to achieve enhanced returns that are attractive notwithstanding the increased level of risk associated with lending to development-stage companies. Potential benefits include:

 	• 	interest rates that typically exceed rates that would be available to portfolio companies if they could borrow in traditional commercial financing transactions;	
 	 	 	
 	• 	the loan support provided by cash proceeds from equity capital invested by venture capital and private equity firms;	
 	 	 	
 	• 	relatively rapid amortization of loans;	
 	 	 	
 	• 	senior ranking to equity and collateralization of loans to minimize potential loss of capital; and	
 	 	 	
 	• 	potential equity appreciation through warrants.	
 
We believe that Technology Lending also provides an attractive financing source for portfolio companies, their management teams and their equity capital investors, as it:

 	• 	is typically less dilutive to the equity holders than additional equity financing;	

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 	• 	extends the time period during which a portfolio company can operate before seeking additional equity capital or pursuing a sale transaction or other liquidity event; and	
 	 	 	
 	• 	allows portfolio companies to better match cash sources with uses.	
 
Market Size.  Our Advisor estimates, based upon our 16 years of experience making Technology Loans to companies in our Target Industries, that during such period the ratio of the aggregate principal amount of debt investments made to the aggregate capital invested by venture capital investors has been approximately 10% to 20%. According to Dow Jones VentureSource, $21.4 billion of venture capital equity was invested in companies in our Target Industries during 2009. Accordingly, based on our Advisor’s past experience, we would estimate that the size of the Technology Loan market for 2009 was in the range of approximately $2.1 billion to $4.2 billion. We believe that the market for Technology Loans should grow over the next several years based upon several factors. We believe the level of venture capital investment for 2009 is at a cyclical low, as shown by the $32.2 billion and $31.0 billion of venture capital investment for 2007 and 2008, respectively, as reported by Dow Jones VentureSource. We believe that the comparable period of 2009 in the venture capital investment cycle is 2003, because 2003 represented the last period of decline in the amount of venture capital investment following the burst of the technology bubble in 2000. Venture capital investment steadily increased from $22.9 billion in 2004 to $32.2 billion in 2007 as, reported by Dow Jones VentureSource, representing a compounded annual growth rate of 8.9% for that period. Our belief that 2009 was a low point in the venture capital investment cycle is further supported by the fact that the amount of venture capital investment in the last three quarters of 2009 increased from a 13 year low of $4.2 billion in the first quarter of 2009 to $5.6 billion in the second quarter of 2009, $5.4 billion in the third quarter of 2009, and $6.9 billion in the fourth quarter of 2009. Dow Jones VentureSource further reported venture capital investments of $6.9 billion in the fourth quarter of 2009 compared to $6.3 billion in the fourth quarter of 2008, representing a 10% increase period to period. That positive trend continued into 2010 with venture capital investments of $4.7 billion in the first quarter of 2010 compared to $4.2 billion in the first quarter of 2009, representing a 12% increase period to period. The potential for future growth in the market for Technology Loans is also supported by the fact that, according to Dow Jones VentureSource, there was $17 billion of liquidity events related to M&A and IPO activity for companies in our Target Industries in 2009, of which $7.3 billion was generated in the fourth quarter, representing 44% of the total activity for the year. This not only returns capital to investors which can be reinvested in venture capital investments, but also makes venture capital a more attractive investment class to investors, thus attracting additional capital. In addition, nearer term exits for venture capital investors, reinforces Technology Loans as a cheaper financing alternative than venture capital for companies in our Target Industries and their investors, thus driving up demand for Technology Loans.
 
Portfolio Company Valuations.  According to Dow Jones VentureSource, from 2007 through 2009 valuations of existing companies in our Target Industries significantly decreased, as they did for most asset classes. We believe this decrease was due to general macroeconomic conditions, including lower demand for products and services, lack of availability of capital and investors’ decreased risk tolerance. We believe the decrease in valuations in our Target Industries caused by macroeconomic factors may present a cyclical opportunity to participate in warrant gains in excess of those which are typically experienced by Technology Lenders. Our future portfolio companies may not only increase in value due to their successful technology development and/or revenue growth, but as macroeconomic conditions improve, valuations may also increase due to the general increase in demand for goods and services, the greater availability of capital and an increase in investor risk tolerance. An example of the positive and negative macroeconomic impact on valuations last occurred in the years between 2001 and 2005. Following the macroeconomic impact of the technology downturn of 2001 and the events of “9/11”, according to Dow Jones VentureSource, median valuations for venture capital backed technology-related financing fell from $25 million at December 2000 to $10 million at January 2003, but by December 2005, median valuations for venture capital backed technology related financings had risen to $15 million.
 
See “Business — Market Opportunity” on page 66 for more information about our market opportunity.
 
Competitive Strengths
 
We believe that we, together with our Advisor, possess significant competitive strengths, including:
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Consistently execute commitments and close transactions.  Our Advisor and its senior management and investment professionals have an extensive track record of originating, underwriting and closing Technology Loans. Our Advisor has directly originated, underwritten, and managed more than 115 Technology Loans with an aggregate original principal amount of $700 million since it commenced operations in 2004 to the present. In our experience, prospective portfolio companies prefer lenders that have demonstrated their ability to deliver on their commitments. Our Advisor’s ability to deliver on its commitments has resulted in satisfied portfolio companies, management teams and venture capital and private equity investors and created an extensive base of transaction sources and references for our Advisor.
 
Robust direct origination capabilities.  Our Advisor’s managing directors each have significant experience originating Technology Loans in our Target Industries. This experience has given each managing director a deep knowledge of our Target Industries and, assisted by their long standing working relationships with our Advisor’s senior management and our Advisor’s brand name recognition in our market, has resulted in a steady flow of high quality investment opportunities that are consistent with the strategic vision and expectations of our Advisor’s senior management. The combination of the managing directors’ experience and their close working relationship with our Advisor’s senior management, together with the extensive base of transaction sources and references generated by our Advisor’s active participation in the Technology Lending market, has created an efficient marketing and sales organization.
 
Access to capital.  Since it commenced operations in 2004, our Advisor has always had access to capital which allowed it to consistently offer Technology Loans to companies in our Target Industries, including offering loans through Compass Horizon during the difficult economic markets of 2008 and 2009. Our Advisor’s demonstrated access to capital, including through the Credit Facility, has created awareness among companies in our Target Industries of our Advisor’s consistent ability to make Technology Loans without interruption in all market conditions, thus making our Advisor a trusted source for Technology Loans to companies, their management teams and their venture capital and private equity investors.
 
Highly experienced and cohesive management team.  Our Advisor has had the same senior management team of experienced professionals since its inception, thereby creating awareness among companies in our Target Industries, their management and their investors that prospective portfolio companies of Horizon will receive consistent and predictable service, in terms of available loan products and economic terms, underwriting requirements, loan closing process and portfolio management. This consistency allows companies, their management teams and their investors to predict likely outcomes when expending resources in seeking and obtaining Technology Loans from us. Companies may not have the same level of predictability when dealing with other lenders in the Technology Lending market.
 
Relationships with venture capital and private equity investors.  Our Advisor’s senior management team and managing directors have developed a comprehensive knowledge of the venture capital and private equity firms and their partners that participate in our Target Industries. Because of our Advisor’s senior management and managing directors’ demonstrated history of delivering loan commitments and value to many of these firms’ portfolio companies, our Advisor has developed strong relationships with many of these firms and their partners. The strength and breadth of our Advisor’s venture capital and private equity relationships would take considerable time and expense to develop. We will rely on these relationships to implement our business plan.
 
Well-known brand name.  Our Advisor has originated over $700 million in Technology Loans to more than 115 companies in our Target Industries under the “Horizon Technology Finance” brand. Each of these companies is backed by one or more venture capital or private equity firms, thus creating a network of Target Industry companies and equity sponsors who know of, and have worked with, “Horizon Technology Finance.” In addition, our Advisor has attended, participated in, or moderated venture lending or alternative financing panel sessions at venture capital, technology, life sciences and other industry related events over the past six years. This pro-active participation in the lending market for our Target Industries has created strong and positive brand name recognition for our Advisor. We believe that the “Horizon Technology Finance” brand is a competent, knowledgeable and active participant in the Technology Lending marketplace and will continue to result in a significant number of referrals and prospective investment opportunities in our Target Industries.
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Investment Summary
 
The following table summarizes our total original funded investments since inception, including 13 loans that have been fully repaid. See “Business — General” on page 63 for a description of the general terms of our loans and other investments.

Portfolio Company	 	Target Industry — Sector	 	Investment	 	
 	 	 	 	 	 	 	
ACT Biotech, Inc. 	 	Life Sciences — Biotechnology	 	$	1,000,000	 	
Advanced Biohealing, Inc. 	 	Life Science — Biotechnology	 	$	5,000,000	 	
Ambit Biosciences Corporation	 	Life Science — Biotechnology	 	$	8,000,000	 	
Anesiva, Inc. 	 	Life Science — Biotechnology	 	$	3,333,333	 	
Arcot Systems, Inc. 	 	Technology — Software	 	$	1,250,000	 	
Authoria, Inc. 	 	Technology — Software	 	$	1,575,000	 	
BioScale, Inc. 	 	Healthcare Information and Services — Diagnostics	 	$	4,000,000	 	
Brix Networks, Inc. 	 	Technology — Communications	 	$	3,150,000	 	
Calypso Medical Technologies, Inc. 	 	Life Science — Medical Device	 	$	4,800,001	 	
Clarabridge, Inc. 	 	Technology — Software	 	$	2,250,000	 	
Concentric Medical, Inc. 	 	Life Science — Medical Device	 	$	10,333,333	 	
Configuresoft, Inc. 	 	Technology — Software	 	$	1,750,000	 	
Courion Corporation	 	Technology — Software	 	$	2,500,000	 	
DriveCam, Inc. 	 	Technology — Software	 	$	4,200,000	 	
Enphase Energy, Inc. 	 	Cleantech — Energy Efficiency	 	$	7,000,000	 	
EnteroMedics, Inc. 	 	Life Science — Medical Device	 	$	5,000,000	 	
Everyday Health, Inc. f/k/a Waterfront Media, Inc. 	 	Technology — Consumer-related Technologies	 	$	5,000,000	 	
Genesis Networks, Inc. 	 	Technology — Networking	 	$	4,000,000	 	
Grab Networks, Inc. 	 	Technology — Networking	 	$	4,000,000	 	
Hatteras Networks, Inc. 	 	Technology — Communications	 	$	3,500,000	 	
Impinj, Inc. 	 	Technology — Semiconductor	 	$	1,000,000	 	
IntelePeer, Inc. 	 	Technology — Networking	 	$	4,000,000	 	
iSkoot, INC	 	Technology — Software	 	$	4,000,000	 	
Mall Networks	 	Technology — Internet and Media	 	$	2,500,000	 	
Motion Computing, Inc. 	 	Technology — Networking	 	$	5,000,000	 	
Netuitive, Inc. 	 	Technology — Software	 	$	1,000,000	 	
NewRiver, Inc. 	 	Technology — Software	 	$	4,000,000	 	
Novalar Pharmaceuticals, Inc. 	 	Life Science — Biotechnology	 	$	5,000,000	 	
OpenPeak, Inc.	 	Technology — Communications	 	$	6,666,667	 	
Pharmasset, Inc. 	 	Life Science — Biotechnology	 	$	10,000,000	 	
PixelOptics, Inc. 	 	Life Science — Medical Device	 	$	5,000,000	 	
Plateau Systems, Ltd. 	 	Technology — Software	 	$	2,500,000	 	
Precision Therapeutics, Inc. 	 	Healthcare Information and Services — Diagnostics	 	$	5,000,000	 	
Radisphere National Radiology Group, Inc. 	 	Healthcare Information and Services — Diagnostics	 	$	10,000,000	 	
Revance Therapeutics, Inc. 	 	Life Science — Biotechnology	 	$	8,250,000	 	
Satcon Technology Corporation	 	Cleantech — Energy Efficiency	 	$	12,000,000	 	
SnagAJob.com, Inc. 	 	Technology — Consumer-related Technologies	 	$	3,500,000	 	
Softrax Corporation	 	Technology — Software	 	$	2,000,000	 	
StarCite, Inc. 	 	Technology — Consumer-related Technologies	 	$	4,000,000	 	
StreamBase Systems, Inc. 	 	Technology — Software	 	$	4,000,000	 	
Tagged, Inc. 	 	Technology — Consumer-related Technologies	 	$	3,000,000	 	
Talyst, Inc. 	 	Life Sciences — Other Healthcare	 	$	2,500,000	 	
Tengion, Inc. 	 	Life Science — Medical Device	 	$	5,772,622	 	
Transave, Inc. 	 	Life Science — Biotechnology	 	$	5,199,980	 	

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Portfolio Company	 	Target Industry — Sector	 	Investment	 	
 	 	 	 	 	 	 	
Vette Corp. 	 	Technology — Data Storage	 	$	5,000,000	 	
ViOptix, Inc. 	 	Life Science — Medical Device	 	$	2,000,000	 	
XIOTech Corporation	 	Technology — Data Storage	 	$	5,000,000	 	
Xoft, Inc. 	 	Life Science — Medical Device	 	$	3,701,000	 	
 	 	 	 	 	 	 	
Total investment	 	 	 	$	213,231,936	 	

Distribution and Share Exchange
 
We were formed in March 2010 to continue and expand the business of Compass Horizon. Compass Horizon is the entity that currently owns all of the portfolio investments that we will own upon the closing of this offering. Prior to the completion of this offering, Compass Horizon intends to make a cash distribution to CHP of approximately $16.0 million from net income and as a return of capital, which we refer to as the “Pre-IPO Distribution.” After the Pre-IPO Distribution and immediately prior to the completion of this offering, the Compass Horizon Owners will exchange their membership interests in Compass Horizon for        shares of our common stock based upon a net asset value of $      as of          , 2010, which we refer to as the “Share Exchange.” Upon completion of the Share Exchange and this offering, Compass Horizon will become our wholly owned subsidiary, and we will effectively own all of Compass Horizon’s assets, including all of its investments. See “The Exchange Transaction” on page 38 for more information about the Pre-IPO Distribution and the Share Exchange.
 
Risk Factors
 
The value of our assets, as well as the market price of our shares, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in us involves other risks, including the following:

 	• 	We have a limited operating history and may not be able to achieve our investment objective or generate sufficient revenue to make or sustain distributions to our stockholders and your investment in us could decline substantially;	
 	 	 	
 	• 	We may not replicate the historical results achieved by other entities managed or sponsored by members of our Advisor or its affiliates;	
 	 	 	
 	• 	Neither we nor our Advisor has any experience operating under the constraints imposed on a business development company or managing an investment company, which may affect our ability to manage our business and impair your ability to assess our prospects;	
 	 	 	
 	• 	We are dependent upon key personnel of our Advisor and our Advisor’s ability to hire and retain qualified personnel;	
 	 	 	
 	• 	If we are unable to satisfy the requirements under the Code for qualification as a RIC, we will be subject to corporate-level federal income tax;	
 	 	 	
 	• 	We have not yet identified many of the potential investment opportunities for our portfolio that we will invest in with the proceeds of this offering;	
 	 	 	
 	• 	If our investments do not meet our performance expectations, you may not receive distributions;	
 	 	 	
 	• 	Most of our portfolio companies will need additional capital, which may not be readily available;	
 	 	 	
 	• 	Economic recessions or downturns could adversely affect our business and that of our portfolio companies which may have an adverse effect on our business, results of operations and financial condition;	
 	 	 	
 	• 	Our investment strategy will focus on investments in development-stage companies in our Target Industries, which are subject to many risks, including volatility, intense competition, shortened product life cycles and periodic downturns, and would be typically rated below “investment grade”;	
 	 	 	
 	• 	Prior to this offering, there has been no public market for our common stock, and we cannot assure you that the market price of shares of our common stock will not decline following the offering;	
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 	• 	Subsequent sales in the public market of substantial amounts of our common stock issued to insiders or others may have an adverse effect on the market price of our common stock;	
 	 	 	
 	• 	Our common stock price may be volatile and may decrease substantially;	
 	 	 	
 	• 	We may allocate the net proceeds from this offering in ways with which you may not agree; and	
 	 	 	
 	• 	Investors in this offering will incur immediate dilution upon the closing of this offering.	
 
See “Risk Factors” beginning on page 16 and the other information included in this prospectus, for a more detailed discussion of the material risks you should carefully consider before deciding to invest in our common stock.
 
Company Information
 
Our administrative and executive offices are located at 76 Batterson Park Road, Farmington, Connecticut 06032, and our telephone number is (860) 676-8654. We expect to establish a website at  http://www.horizontechnologyfinancecorp.com  upon completion of this offering. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus.
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THE OFFERING
 
Common stock offered:

By us	 	          shares	
 	 	 	
By the selling stockholder	 	          shares

  Total	 	          shares	
 	 	 	
Over-allotment option	 	          shares	
 	 	 	
Common stock to be outstanding immediately after this offering	 	
           shares, excluding           shares of common stock issuable pursuant to the over-allotment option granted to the underwriters.	
 	 	 	
Proposed NASDAQ Global Market symbol	 	“HRZN”	
 	 	 	
Use of proceeds	 	We estimate that we will receive net proceeds from our sale of shares of common stock in this offering of approximately $      (approximately $      if the underwriters exercise their over-allotment option to purchase additional shares in full), assuming an initial public offering price of $      per share (based on the mid-point of the range set forth on the cover of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We plan to use the net proceeds of this offering for new investments in portfolio companies in accordance with our investment objective and strategies as described in this prospectus, for general working capital purposes, and for temporary repayment of debt under our credit facility (which amounts are subject to reborrowing). We will also pay operating expenses, including management and administrative fees, and may pay other expenses such as due diligence expenses of potential new investments, from the net proceeds of this offering. We may also use a portion of the net proceeds to capitalize an SBIC subsidiary to the extent our Advisor’s application to license such entity as an SBIC is approved. Pending such use, we will invest the remaining net proceeds of this offering primarily in cash, cash equivalents, U.S. Government securities and other high-quality debt investments that mature in one year or less from the date of investment. See “Use of Proceeds.” We will not receive any of the proceeds from the shares sold by the selling stockholder.	
 	 	 	
Investment Management Agreement	 	We have entered into an investment management agreement with our Advisor, under which our Advisor, subject to the overall supervision of our board of directors, manages our day-to-day operations and provides investment advisory services to us. For providing these services, our Advisor receives a base management fee from us, paid monthly in arrears, at an annual rate of 2.00% of our gross assets, including any assets acquired with the proceeds of leverage. The investment management agreement also provides that our Advisor or its affiliates may be entitled to an incentive fee under certain circumstances. The incentive fee has two parts, which are independent of each other, with the result that one part may be payable even if the other is not. Under the first part we will pay our Advisor each quarter 20.00% of the amount by which our accrued net income for the quarter after expenses and excluding the effect of any realized capital gains	

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 	 	and losses and any unrealized appreciation and depreciation for the quarter exceeds 1.75% (which is 7.00% annualized) of our average net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” feature. Under the second part of the incentive fee, we will pay our Advisor at the end of each calendar year 20.00% of our realized capital gains from inception through the end of that year, computed net of all realized capital losses and all unrealized depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The second part of the incentive fee is not subject to any minimum return to stockholders. The investment management agreement also provides that we will bear the costs payable to the Advisor under the separate administration agreement. The investment management agreement may be terminated by either party without penalty by delivering written notice to the other party upon not more than 60 days’ written notice. See “Investment Management and Administration Agreements — Investment Management Agreement.”	

Distributions	 	In connection with certain RIC requirements described below in “— Taxation,” to the extent we have income available, we intend to distribute quarterly dividends to stockholders beginning with our first full quarter after the completion of this offering. Our quarterly distributions, if any, will be determined by our board of directors.	

Taxation	 	We intend to elect to be treated, and intend to qualify, as a RIC under Subchapter M of the Code commencing with our taxable year ending on December 31, 2010. As a RIC, we generally will not pay corporate-level federal income taxes on any ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. See “Distributions” and “Material U.S. Federal Income Tax Considerations.”	

Borrowings	 	As of June 30, 2010, we had $91.3 million of indebtedness outstanding under the Credit Facility. We will borrow additional money or issue debt securities within the levels permitted by the 1940 Act when the terms and conditions available are favorable to long-term investing and well-aligned with our investment strategy and portfolio composition in an effort to increase returns to our common stockholders. Borrowing involves significant risks. See “Risk Factors.”	

Trading at a Discount	 	Shares of closed-end investment companies frequently trade at a discount to their net asset value. The possibility that our shares may trade at a discount to our net asset value is separate and distinct from the risk that our net asset value per share may decline. Our net asset value immediately following this offering will reflect reductions resulting from the sales load and the amount of the organization and offering expenses paid by us. This risk may have a greater effect on investors expecting to sell their shares soon after completion of the public offering, and our shares may be more appropriate for long-term investors than for investors with shorter investment horizons. We cannot predict whether our shares will trade above, at or below net asset value.	

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Dividend Reinvestment Plan	 	We are adopting a dividend reinvestment plan for our stockholders. This will be an “opt out” dividend reinvestment plan. As a result, if we declare cash distributions, each stockholder’s cash distributions will be automatically reinvested in additional shares of our common stock unless they specifically “opt out” of our dividend reinvestment plan so as to receive cash distributions. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal income tax consequences as if they received their distributions in cash. See “Dividend Reinvestment Plan.”	
 	 	 	
Anti-Takeover Provisions	 	Our certificate of incorporation and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price for our common stock. See “Description of Capital Stock.”	
 	 	 	
 	 	In addition, our board of directors will be divided into three classes with the term of one class expiring at each annual meeting of stockholders. This structure is intended to provide us with a greater likelihood of continuity of management. A staggered board of directors also may serve to deter hostile takeovers or proxy contests, as may certain other measures we have adopted. See “Description of Capital Stock.”	
 	 	 	
Administration Agreement	 	Under a separate administration agreement, our Advisor will also serve as our administrator. We will reimburse our Advisor for the allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services. In addition, we will reimburse our Advisor for the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our chief financial officer and chief compliance officer and their respective staffs. See “Investment Management and Administration Agreement — Administration Agreement.”	
 	 	 	
Dilution	 	Based on an assumed initial public offering price of $      per share (the mid-point of the range set forth on the cover of this prospectus), purchasers in this offering will experience immediate dilution of approximately $      per share. See “Risk Factors — Risks Related to this Offering and our Common Stock — Investors in this offering will incur immediate dilution upon the closing of this offering” on page 34 and “Dilution” on page 48.	
 	 	 	
Available Information	 	We have filed with the SEC a registration statement on Form N-2 under the Securities Act of 1933, as amended, or the Securities Act, which contains additional information about us and the shares of our common stock being offered by this prospectus. After completion of this offering, we will be obligated to file periodic reports, proxy statements and other information with the SEC. This information will be available at the SEC’s public reference room in Washington, D.C. and on the SEC’s website at http://www.sec.gov.	

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 	 	Upon closing of this offering, we will maintain a website at http://www.horizontechnologyfinancecorp.com  and intend to make all of our annual, quarterly and current reports, proxy statements and other publicly filed information available, free of charge, on or through our website. You may also obtain such information by contacting us at 76 Batterson Park Road, Farmington, Connecticut 06032, or by calling us at (860) 676-8654. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus.	
 	 	 	
 	 	See “Where You Can Find More Information.”	
 
Unless the context otherwise requires, the number of shares of our common stock to be outstanding immediately following the completion of this offering is based on the number of shares outstanding as of March 31, 2010 and assumes the sale of           shares of our common stock by the selling stockholder and the issuance of           shares of our common stock in this offering at the mid-point of the range set forth on the cover of this prospectus. Unless otherwise noted, all information in this prospectus assumes no exercise by the underwriters of their right to purchase up to          shares of common stock to cover over-allotments.
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FEES AND EXPENSES
 
The following table is intended to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. However, we caution you that some of the percentages indicated in the table below are estimates and may vary.  The following table and example should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown.  Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you” or “us” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in the Company.

Stockholder Transaction Expenses	 	 	 	 	 	 	 	 	 	 	 	 	
Sales Load (as a percentage of offering price)	 	 	7.00	%(1)	 	 	 	 	 	 	 	 	
Offering Expenses (as a percentage of offering price)	 	 	1.20	%(2)	 	 	 	 	 	 	 	 	
Dividend Reinvestment Plan Fees	 	 	None 	(3)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Stockholder Transaction Expenses (as a percentage of offering price)	 	 	8.20	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Annual Expenses (as a Percentage of Net Assets Attributable to Common Stock)	 	 	 	 	 	 	 	 	 	 	 	 	
Management Fee	 	 	3.31	%(4)	 	 	 	 	 	 	 	 	
Incentive Fees Payable Under the Investment Management Agreement	 	 	0.00	%(5)	 	 	 	 	 	 	 	 	
Interest Payments on Borrowed Funds	 	 	3.21	%(6)	 	 	 	 	 	 	 	 	
Other Expenses (estimated for the current fiscal year)	 	 	1.40	%(7)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Annual Expenses (estimated)	 	 	7.92	%(4)(8)	 	 	 	 	 	 	 	 	

 
 	 	 	
(1)	 	The underwriting discounts and commissions with respect to shares sold in this offering, which are one-time fees to the underwriters in connection with this offering, is the only sales load being paid in connection with this offering.	
(2)	 	Amount reflects estimated offering expenses of approximately $1.5 million.	
(3)	 	The expenses of the dividend reinvestment plan are included in “other expenses.” See “Dividend Reinvestment Plan.”	

(4)	 	Our base management fee under the investment management agreement is based on our gross assets, which includes assets acquired using leverage, and is payable monthly in arrears. The management fee referenced in the table above is based on $233.0 million of gross assets, $140.7 million of net assets, which reflects our gross assets and net assets on a pro forma basis after giving effect to this offering and $91.3 million of expected outstanding indebtedness immediately upon the closing of this offering. See “Investment Management and Administration Agreements — Investment Management Agreement.”	

(5)	 	We may have capital gains and interest income that could result in the payment of an incentive fee to our Advisor in the first year after completion of this offering. However, the incentive fee payable to our Advisor is based on our performance and will not be paid unless we achieve certain goals. As we cannot predict whether we will meet the necessary performance targets, we have assumed an incentive fee of 0% in this chart. Based on our current business plan, we anticipate that substantially all of the net proceeds of this offering will be used within nine months, depending on the availability of appropriate investment opportunities, consistent with our investment objective and market conditions. We expect that during this period we will not have any capital gains and that the amount of our interest income will not exceed the quarterly minimum hurdle rate discussed below. As a result, we do not anticipate paying any incentive fees in the first year after the completion of this offering.	
 	 	 	
 	 	The incentive fee consists of two parts:	
 	 	 	
 	 	The first part, which is payable quarterly in arrears, will equal 20.00% of the excess, if any, of our “Pre-Incentive Fee Net Investment Income” over a 1.75% quarterly (7.00% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, our Advisor receives no incentive fee until our net investment income equals the hurdle rate of 1.75% but then receives, as a “catch-up,” 100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.1875% in any calendar quarter, our Advisor will receive 20.00% of our pre-incentive fee net investment income as if a hurdle rate did not apply. The first part of the incentive fee will be computed and paid on income that may include interest that is accrued but not yet received in cash.	
 	 	 	
 	 	The second part of the incentive fee will equal 20.00% of our “Incentive Fee Capital Gains,” if any, which will equal our realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The second part of the incentive fee will be payable, in arrears, at the end of each calendar year (or upon termination of the investment management agreement, as of the termination date), commencing with the year ending December 31, 2010. For a more detailed discussion of the calculation of this fee, see “Investment Management and Administration Agreements — Investment Management Agreement.”	

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(6)	 	We will borrow funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so. The costs associated with our borrowings are indirectly borne by our investors. As of June 30, 2010, we had $91.3 million outstanding under our Credit Facility. For purposes of this section, we have computed interest expense using the balance outstanding at, and the LIBOR rate on, June 30, 2010 and the interest rate on our Credit Facility of LIBOR plus 2.50%. The LIBOR rate on June 30, 2010 was .35%. We have also included the estimated amortization of fees incurred in establishing our Credit Facility and estimated settlements under existing interest rate swap agreements. We may also issue preferred stock, subject to our compliance with applicable requirements under the 1940 Act.	

(7)	 	Includes our assumed overhead expenses, including payments under the administration agreement, based on our projected assumed allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement during the first full year of operations. See “Investment Management and Administration Agreements — Administration Agreement.”	
(8)	 	“Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and after taking into account any incentive fees payable during the period), rather than the total assets, including assets that have been funded with borrowed monies. The reason for presenting expenses as a percentage of net assets attributable to common stockholders is that our common stockholders bear all of our fees and expenses.	
 
Example
 
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses remain at the levels set forth in the table above.

 	 	1 Year	 	3 Years	 	5 Years	 	10 Years	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return	 	$	155	 	 	$	293	 	 	$	422	 	 	$	709	 	
 
While the example assumes, as required by the applicable rules of the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. The incentive fee under our investment management agreement is unlikely to be significant assuming a 5% annual return and is not included in the example. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our distributions to our common stockholders and our expenses would likely be higher. See “Investment Management and Administration Agreements — Examples of Incentive Fee Calculation” for additional information regarding the calculation of incentive fees. In addition, while the example assumes reinvestment of all dividends and other distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution. This price may be at, above or below net asset value. See “Dividend Reinvestment Plan” for additional information regarding our dividend reinvestment plan.
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RISK FACTORS
 
Investing in our common stock involves a high degree of risk. Before you invest in shares of our common stock, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide whether to make an investment in our common stock. The risks set forth below are not the only risks we face. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.
 
Risks Related to our Business and Structure
 
We have a limited operating history and may not be able to achieve our investment objective or generate sufficient revenue to make or sustain distributions to our stockholders and your investment in us could decline substantially.
 
We commenced operations in March 2008. As a result of our limited operating history, we are subject to certain business risks and uncertainties associated with any recently formed business enterprise, including the risk that we will not achieve our investment objective and that the value of your investment in us could decline substantially. As a public company, we will be subject to the regulatory requirements of the SEC, in addition to the specific regulatory requirements applicable to business development companies under the 1940 Act and RICs under the Code. Our management and that of our Advisor has not had any prior experience operating under this regulatory framework, and we may incur substantial additional costs, and expend significant time or other resources, to do so. From time to time our Advisor may pursue investment opportunities, like equity investments, in which our Advisor has more limited experience. We may also be unable to replicate the historical performance of prior investment funds. In addition, we may be unable to generate sufficient revenue from our operations to make or sustain distributions to our stockholders.
 
We may not replicate the historical results achieved by other entities managed or sponsored by members of our Advisor or its affiliates.
 
We may be unable to replicate the historical results achieved by our Advisor or its affiliates, and our investment returns could be substantially lower than the returns achieved by them in prior periods. In particular, our Advisor’s returns from several of its other investment vehicles may not be comparable because they were capital call funds and their respective returns were not negatively impacted by uninvested cash. We also may not be able to replicate the performance of our warrants and may not have returns on warrants from our existing portfolio that we hold. Neither our Advisor nor its affiliates were subject to the same tax and regulatory conditions that we intend to operate under following the offering. Furthermore, none of the prior results were from public reporting companies. Additionally, all or a portion of these prior results may have been achieved in particular market conditions which may never be repeated. We are not a capital call fund and, as a result, may have more limited access to cash for investment opportunities than our Advisor historically experienced which could impair our ability to make future investments. Moreover, current or future market volatility and regulatory uncertainty may also have an adverse impact on our future performance.
 
Neither we nor our Advisor has any experience operating under the constraints imposed on a business development company or managing an investment company, which may affect our ability to manage our business and impair your ability to assess our prospects.
 
Prior to this offering, we did not operate as a business development company or manage an investment company under the 1940 Act. As a result, we have no operating results under this regulatory framework that can demonstrate to you either its effect on our business or our ability to manage our business within this framework. The 1940 Act imposes numerous constraints on the operations of business development companies. For example, business development companies are required to invest at least 70% of their total assets in specified types of securities, primarily securities of “eligible portfolio companies” (as defined in the 1940 Act), cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. See
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“Regulation.” Our Advisor’s lack of experience in managing a portfolio of assets under these constraints may hinder our ability to take advantage of attractive investment opportunities and, as a result, could impair our ability to achieve our investment objective. Furthermore, if we are unable to comply with the requirements imposed on business development companies by the 1940 Act, the SEC could bring an enforcement action against us and/or we could be exposed to claims of private litigants. In addition, we could be regulated as a closed-end management investment company under the 1940 Act, which could further decrease our operating flexibility and may prevent us from operating our business as described in this prospectus, either of which could have a material adverse effect on our business, results of operations or financial condition.
 
We are dependent upon key personnel of our Advisor and our Advisor’s ability to hire and retain qualified personnel.
 
We depend on the members of our Advisor’s senior management, particularly Mr. Pomeroy, our Chairman and Chief Executive Officer, and Mr. Michaud, our President, as well as other key personnel for the identification, evaluation, final selection, structuring, closing and monitoring of our investments. These employees have critical industry experience and relationships that we will rely on to implement our business plan to originate Technology Loans in our Target Industries. Our future success will depend on the continued service of Messrs. Pomeroy and Michaud as well as the other senior members of our Advisor’s management team. If our Advisor were to lose the services of either Mr. Pomeroy or Mr. Michaud or any of the other senior members of our Advisor’s management team, we may not be able to operate our business as we expect, and our ability to compete could be harmed, either of which could cause our business, results of operations or financial condition to suffer. In addition, if either of Mr. Pomeroy or Mr. Michaud ceases to be employed by us, the lender under our Credit Facility could, absent a waiver or cure, refuse to advance future funds to us under the facility. Our future success will also depend, in part, on our Advisor’s ability to identify, attract and retain sufficient numbers of highly skilled employees. Absent exemptive or other relief granted by the SEC and for so long as we remain externally managed, the 1940 Act will prevent us from granting options to our employees and adopting a profit sharing plan, which may make it more difficult for us to attract and retain highly skilled employees. If we are not successful in identifying, attracting and retaining these employees, we may not be able to operate our business as we expect. Moreover, we cannot assure you that our Advisor will remain our investment adviser or that we will continue to have access to our Advisor’s investment professionals or its relationships. For example, our Advisor may in the future manage investment funds with investment objectives similar to ours thereby diverting the time and attention of its investment professionals that we rely on to implement our business plan.
 
We operate in a highly competitive market for investment opportunities, and if we are not able to compete effectively, our business, results of operations and financial condition may be adversely affected and the value of your investment in us could decline.
 
A number of entities compete with us to make the types of investments that we plan to make in prospective portfolio companies in our Target Industries. We compete with other business development companies and a large number of venture capital and private equity firms, as well as other investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and finance companies. Some of our competitors are larger and have greater financial, technical, marketing and other resources than we have. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. This may enable these competitors to make commercial loans with interest rates that are comparable to, or lower than, the rates we typically offer. We may lose prospective portfolio companies if we do not match our competitors’ pricing, terms and structure. If we do match our competitors’ pricing, terms or structure, we may experience decreased net interest income and increased risk of credit losses. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships than us and build their market shares. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act will impose on us as a business development company or that the Code will impose on us as a RIC. If we are not able to compete effectively, we may not be able to identify and take advantage of attractive investment opportunities that we identify and may not be able to fully invest our available capital. If this occurs, our business, financial condition and results of operations could be materially adversely affected.
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We will borrow money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.
 
Leverage is generally considered a speculative investment technique, and we intend to continue to borrow money as part of our business plan. The use of leverage will magnify the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in us. We expect to borrow from and issue senior debt securities to banks and other lenders including under the Credit Facility pursuant to which we will be able to borrow up to $125 million upon completion of this offering. As of June 30, 2010, we had outstanding indebtedness of $91.3 million. We also intend to issue debt securities guaranteed by the SBA and sold in the capital markets, to the extent that we or one of our subsidiaries becomes licensed by the SBA. The SBIC regulations, subject to certain regulatory capital requirements among other things, currently permit an SBIC subsidiary to borrow up to $150 million. Lenders of senior securities, including the SBA, will have fixed dollar claims on our assets that will be superior to the claims of our common stockholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. However, any decrease in our income would cause net income to decline more sharply than it would have had we not leveraged. This decline could adversely affect our ability to make common stock dividend payments. In addition, because our investments may be illiquid, we may be unable to dispose of them or to do so at a favorable price in the event we need to do so if we are unable to refinance any indebtedness upon maturity, and, as a result, we may suffer losses.
 
Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as our Advisor’s management fee will be payable to our Advisor based on our gross assets, including those assets acquired through the use of leverage, our Advisor may have a financial incentive to incur leverage which may not be consistent with our stockholders’ interests. In addition, holders of our common stock will bear the burden of any increase in our expenses, as a result of leverage, including any increase in the management fee payable to our Advisor.
 
Illustration:  The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below:

 	 	Assumed Return on our Portfolio
	
 	 	(net of expenses)	
 	 	−10%	 	−5%	 	0%	 	5%	 	10%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corresponding return to stockholder (1)	 	 	−29%	 	 	 	−17%	 	 	 	−5%	 	 	 	7%	 	 	 	19%	 	

 	 	 	
(1)	 	Assumes $157 million in total assets, $91 million in debt outstanding, $65 million in stockholders’ equity, and an average cost of funds of 3.67%. Assumptions are based on our financial condition and our average costs of funds at June 30, 2010. Actual interest payments may be different.	
 
If we are unable to comply with the covenants or restrictions in the Credit Facility, our business could be materially adversely affected.
 
Our wholly owned subsidiary, Horizon Credit I LLC, which we refer to as “Credit I,” is party to our Credit Facility with WestLB AG. This Credit Facility includes covenants that, among other things, restrict the ability of Compass Horizon and Credit I to make loans to, or investments in, third parties (other than Technology Loans and warrants or other equity participation rights), pay dividends and distributions, incur additional indebtedness and engage in mergers or consolidations. The Credit Facility also restricts the ability of Compass Horizon, Credit I, and our Advisor to create liens on the collateral securing the Credit Facility, permit additional negative pledges on such collateral and change the business currently conducted by them. The Credit Facility also includes provisions that permit our lender to refuse to advance funds under the facility in the event of a change of control of us or Compass Horizon. For this purpose a change of control generally means a merger or other consolidation, a liquidation, a sale of all or substantially all of our assets, or a transaction in which any person or group acquires more than 50% of our shares. In addition, the Credit Facility also requires Compass Horizon, Credit I and our Advisor to comply with
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various financial covenants, including, among other covenants, maintenance by Compass Horizon and our Advisor of a minimum tangible net worth and limitations on the value of, and modifications to, the loan collateral that secures the Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Complying with these restrictions may prevent us from taking actions that we believe would help us to grow our business or are otherwise consistent with our investment objective. These restrictions could also limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities or could result in our failing to qualify as a RIC and thus becoming subject to corporate-level income tax. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information regarding our credit arrangements.
 
The breach of certain of the covenants or restrictions unless cured within the applicable grace period, would result in a default under the Credit Facility that would permit the lender to declare all amounts outstanding to be due and payable. In such an event, we may not have sufficient assets to repay such indebtedness and the lender may exercise rights available to it under the security interest granted in the assets of Credit I, including, to the extent permitted under applicable law, the seizure of such assets without adjudication. As a result, any default could have serious consequences to our financial condition. An event of default or an acceleration under the Credit Facility could also cause a cross-default or cross-acceleration of another debt instrument or contractual obligation, which would adversely impact our liquidity. We may not be granted waivers or amendments to the Credit Agreement if for any reason we are unable to comply with it, and we may not be able to refinance the Credit Agreement on terms acceptable to us, or at all.
 
Because we will distribute all or substantially all of our income and any realized net short-term capital gains over realized net long-term capital losses to our stockholders, we will need additional capital to finance our growth, if any. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired.
 
To satisfy the requirements applicable to a RIC, to avoid payment of excise taxes and to minimize or avoid payment of corporate-level federal income taxes, we intend to distribute to our stockholders all or substantially all of our net ordinary income and realized net short-term capital gains over realized net long-term capital losses except that we may retain certain net long-term capital gains, pay applicable income taxes with respect thereto, and elect to treat such retained capital gains as deemed distributions to our stockholders. As a business development company, we will generally be required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. Because we will continue to need capital to grow our loan and investment portfolio, this limitation may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as discussed above, as a business development company, we will be limited in our ability to issue equity securities priced below net asset value. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our net asset value could decline.
 
If we are unable to obtain additional debt financing, our business could be materially adversely affected.
 
We may want to obtain additional debt financing, or need to do so upon maturity of the Credit Facility, in order to obtain funds which may be made available for investments. The Credit Facility matures in March 2015. We may request advances under the Credit Facility, which we refer to as the “Revolving Period,” through March 4, 2011, unless the Revolving Period is extended upon Credit I’s request and upon mutual agreement of WestLB and Credit I. Upon the date of termination of the Revolving Period, we may not request new advances and we must repay the outstanding advances under the Credit Facility as of such date at such times and in such amounts as are necessary to maintain compliance with the terms and conditions of the Credit Facility, particularly the condition that the principal balance of the Credit Facility does not exceed 75% of the aggregate principal balance of our eligible loans to our portfolio companies. All outstanding advances under the Credit Facility are due and payable on March 4, 2015, unless such date is extended upon Credit I’s request and upon mutual agreement of WestLB and Credit I. If we
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are unable to increase, renew or replace any such facility and enter into a new debt financing facility on commercially reasonable terms, our liquidity may be reduced significantly. In addition, if we are unable to repay amounts outstanding under any such facilities and are declared in default or are unable to renew or refinance these facilities, we may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances that we may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S. dollar, a further economic down turn or an operational problem that affects third parties or us, and could materially damage our business.
 
If we do not receive qualification from the SBA to form an SBIC or we are unable to comply with SBA regulations after our SBIC subsidiary is formed, our business plan and investment objective could be materially adversely affected.
 
We are currently seeking qualification as an SBIC for a to-be-formed wholly owned subsidiary which will be regulated by the SBA. On July 14, 2009, our Advisor received notification from the SBA that invited our Advisor to continue with the application process for licensing this subsidiary as an SBIC. However, the application to license this subsidiary as an SBIC is subject to SBA approval. If we do not receive SBA approval to license an SBIC our business plan and investment objective could be materially adversely affected. If we or one of our subsidiaries receives this qualification, we will become subject to SBA regulations that may constrain our activities or the activities of one of our subsidiaries. We may need to make allowances in our investment activity or the investment activity of our subsidiaries to comply with SBA regulations. In addition, SBA regulations may impose parameters on our business operations and investment objectives that are different than what we otherwise would do if we were not subject to these regulations. Failure to comply with the SBA regulations could result in the loss of the SBIC license and the resulting inability to participate in the SBA-sponsored debenture program. The SBA also limits the maximum amount that may be borrowed by any single SBIC. The SBA prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of a licensed SBIC. A “change of control” is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise. To the extent that we form an SBIC subsidiary, this would prohibit a change of control of us without prior SBA approval. If we are unable to comply with SBA regulations, our business plan and growth strategy could be materially adversely affected.
 
Changes in interest rates may affect our cost of capital and net investment income.
 
Because we may incur indebtedness to fund our investments, a portion of our income will depend upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. Some of our investments will have fixed interest rates, while other borrowings will likely have floating interest rates. As a result, a significant change in interest rates could have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income. We may hedge against interest rate fluctuations by using hedging instruments such as swaps, futures, options and forward contracts, subject to applicable legal requirements, including, without limitation, all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission. These activities may limit our ability to benefit from lower interest rates with respect to the hedged portfolio. We also have limited experience in entering into hedging transactions, and we will initially have to rely on the advice of outside parties with respect to the use of these financial instruments or develop this expertise internally. Adverse developments resulting from changes in interest rates or hedging transactions or any adverse developments from our use of hedging instruments could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be unable to enter into appropriate hedging transactions when desired and any hedging transactions we enter into may not be effective.
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Because many of our investments typically will not be in publicly traded securities, the value of our investments may not be readily determinable, which could adversely affect the determination of our net asset value.
 
We expect our investments to consist primarily of loans or securities issued by privately held companies. As a result, the fair value of these investments that are not publicly traded may not be readily determinable. In addition, we will not be permitted to maintain a general reserve for anticipated loan losses. Instead, we will be required by the 1940 Act to specifically value each investment and record an unrealized gain or loss for any asset that we believe has increased or decreased in value. We will value these investments on a quarterly basis, or more frequently as circumstances require, in accordance with our valuation policy consistent with generally accepted accounting principles. Our board of directors will employ an independent third-party valuation firm to assist the board in arriving at the fair value of our investments. The board will discuss valuations and determine the fair value in good faith based on the input of our Advisor and the third-party valuation firm. The factors that may be considered in fair value pricing our investments include the nature and realizable value of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company does business, comparisons to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations are inherently uncertain and may be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments are materially higher than the values that we ultimately realize upon the disposal of these investments. See “Determination of Net Asset Value.”
 
Disruption in the capital markets and the credit markets could adversely affect our business.
 
Without sufficient access to the capital markets or credit markets, we may be forced to curtail our business operations or we may not be able to pursue new investment opportunities. Beginning in 2007, the global capital markets entered into a period of disruption and extreme volatility and, accordingly, there has been and will continue to be uncertainty in the financial markets in general. Ongoing disruptive conditions in the financial industry could restrict our business operations and could adversely impact or results of operations and financial condition. We are unable to predict when economic and market conditions may become more favorable. Even if these conditions improve significantly over the long term, adverse conditions in particular sectors of the financial markets could adversely impact our business.
 
We may not realize gains from our equity investments.
 
All of our investments that we have made in the past include, and investments we may make in the future are expected to include warrants. In addition, we may from time to time make non-control, equity co-investments in companies in conjunction with private equity sponsors. Our goal with respect to these equity investments is to ultimately realize gains upon disposition. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, refinancing or public offering, which would allow us to sell the underlying equity interests. In addition, the time and attention of the investment personnel of our Advisor could be diverted from managing our debt portfolio in order to manage any equity investments we receive thereby impacting the value of our remaining portfolio, and our Advisor’s significant experience in Technology Lending may not result in returns on our equity investments.
 
From time to time we may also acquire equity participation rights in connection with an investment which will allow us, at our option, to participate in future rounds of equity financing through direct capital investments in our portfolio companies. Our Advisor will determine whether to exercise any of these rights. Accordingly, you will have no control over whether or to what extent these rights are exercised, if at all. If we exercise these rights, we will be making an additional investment completely in the form of equity which will subject us to significantly more risk than our Technology Loans and we may not receive the returns that are anticipated with respect to these investments.
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We may not realize expected returns on warrants received in connection with our debt investments.
 
As discussed above, we generally receive warrants in connection with our debt investments. If we do not receive the returns that are anticipated on the warrants, our investment returns on our portfolio companies, and the value of your investment in us, may be lower than expected.
 
Regulations governing our operation as a business development company will affect our ability to, and the way in which, we raise additional capital, which may expose us to additional risks.
 
Our business plans contemplate a substantial amount of capital in addition to the proceeds of this offering. We may obtain additional capital through the issuance of debt securities, other indebtedness or preferred stock, and we may borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Moreover, in connection with the filing of the SBA license application, we expect to seek exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiary guaranteed by the SBA from the 200% consolidated asset coverage ratio requirements. If we issue senior securities, we would be exposed to typical risks associated with leverage, including an increased risk of loss. In addition, if we issue preferred stock, it would rank “senior” to common stock in our capital structure and preferred stockholders would have separate voting rights and may have rights, preferences or privileges more favorable than those of holders of our common stock.
 
The 1940 Act permits us to issue senior securities in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If our asset coverage ratio is not at least 200%, we will not be permitted to pay dividends or issue additional senior securities. If the value of our assets declines, we may be unable to satisfy this asset coverage test. If that happens, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when we may be unable to do so or to do so on favorable terms.
 
As a business development company, we will generally not be able to issue our common stock at a price below net asset value without first obtaining the approval of our stockholders and our independent directors. This requirement will not apply to stock issued upon the exercise of options, warrants or rights that we may issue from time to time. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and you may experience dilution.
 
If we are unable to satisfy the requirements under the Code for qualification as a RIC, we will be subject to corporate-level federal income tax.
 
To qualify as a RIC under the Code, we must meet certain source of income, diversification and distribution requirements contained in Subchapter M of the Code and maintain our election to be regulated as a business development company under the 1940 Act.
 
The source of income requirement is satisfied if we derive in each taxable year at least 90% of our gross income from dividends, interest (including tax-exempt interest), payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income (including but not limited to gain from options, futures or forward contracts) derived with respect to our business of investing in stock, securities or currencies, or net income derived from an interest in a “qualified publicly traded partnership.” The status of certain forms of income we receive could be subject to different interpretations under the Code and might be characterized as non-qualifying income that could cause us to fail to qualify as a RIC and, thus, may cause us to be subject to corporate-level federal income taxes.
 
The annual distribution requirement for a RIC is satisfied if we distribute to our stockholders on an annual basis an amount equal to at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. If we borrow money, we may be subject to certain asset coverage ratio requirements under the 1940 Act and loan covenants that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax.
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To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in our having to (i) dispose of certain investments quickly or (ii) raise additional capital to prevent the loss of RIC status. Because most of our investments will be in development-stage companies within our Target Industries, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we raise additional capital to satisfy the asset diversification requirements, it could take a longer time to invest such capital. During this period, we will invest in temporary investments, such as cash and cash equivalents, which we expect will earn yields substantially lower than the interest income that we anticipate receiving in respect of our investments in secured and amortizing loans.
 
If we were to fail to qualify for the federal income tax benefits allowable to RICs for any reason and become subject to a corporate-level federal income tax, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution to our stockholders, and the actual amount of our distributions. Such a failure would have a material adverse effect on us, the net asset value of our common stock and the total return, if any, obtainable from your investment in our common stock. In addition, we could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a RIC. See “Regulation” and “Material U.S. Federal Income Tax Considerations.”
 
We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash.
 
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), we must include in taxable income each year a portion of the original issue discount that accrues over the life of the debt instrument, regardless of whether cash representing such income is received by us in the same taxable year. Because in certain cases we may recognize taxable income before or without receiving cash representing such income, we may have difficulty meeting the requirement that we distribute an amount equal to at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized long-term capital losses, if any (the “Annual Distribution Requirement”). For example, the proportion of our income that resulted from original issue discount for the fiscal years ended December 31, 2008 and December 31, 2009 and the six month period ended June 30, 2010 was approximately 4.34%, 8.24% and 8.55%, respectively.
 
Accordingly, we may need to sell some of our assets at times that we would not consider advantageous, raise additional debt or equity capital or forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that we believe are necessary or advantageous to our business) in order to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources to satisfy the Annual Distribution Requirement, we may fail to qualify for the federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level federal income tax on all our income. See “Material U.S. Federal Income Tax Considerations.”
 
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a business development company or be precluded from investing according to our current business strategy.
 
As a business development company, we will be prohibited from acquiring any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We expect that substantially all of our assets that we may acquire in the future will be “qualifying assets,” although we may decide to make other investments that are not “qualifying assets” to the extent permitted by the 1940 Act. If we acquire debt or equity securities from an issuer that has outstanding marginable securities at the time we make an investment, these acquired assets may not be treated as qualifying assets. This result is dictated by the definition of “eligible portfolio company” under the 1940 Act, which in part looks to whether a company has outstanding marginable securities. See “Regulation — Qualifying assets.” If we do not invest a sufficient portion of our assets in qualifying assets, we could lose our status as a business development company, which would have a material adverse effect on our business, financial condition and results of operations.
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Changes in laws or regulations governing our business could adversely affect our business, results of operations and financial condition.
 
Changes in the laws or regulations or the interpretations of the laws and regulations that govern business development companies, RICs, SBICs or non-depository commercial lenders could significantly affect our operations, our cost of doing business and our investment strategy. We are subject to federal, state and local laws and regulations and judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures, portfolio composition and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements, we may incur significant expenses to comply with these laws, regulations or decisions or we might have to restrict our operations or alter our investment strategy. For example, any change to the SBA’s current debenture SBIC program could have a significant impact on our ability to obtain lower-cost leverage and our ability to compete with other finance companies. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon our business, results of operations or financial condition.
 
Our Advisor has significant potential conflicts of interest with us and your interests as stockholders.
 
As a result of our arrangements with our Advisor, there may be times when our Advisor has interests that differ from those of our stockholders, giving rise to a potential conflict of interest. Our executive officers and directors, as well as the current and future executives and employees of our Advisor, serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of our stockholders. In addition, our Advisor may manage other funds in the future that may have investment objectives that are similar, in whole or in part, to ours. Our Advisor may determine that an investment is appropriate for us and for one or more of those other funds. In such an event, depending on the availability of the investment and other appropriate factors, our Advisor will endeavor to allocate investment opportunities in a fair and equitable manner. It is also possible that we may not be given the opportunity to participate in these other investment opportunities.
 
We pay management and incentive fees to our Advisor and reimburse our Advisor for certain expenses it incurs. As a result, investors in our common stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Also, the incentive fee payable by us to our Advisor may create an incentive for our Advisor to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangements.
 
We have entered into a license agreement with our Advisor pursuant to which our Advisor has agreed to grant us a non-exclusive, royalty-free right and license to use the service mark “Horizon Technology Finance.” Under this agreement, we have a right to use the “Horizon Technology Finance” service mark for so long as the investment management agreement is in effect. In addition, we pay our Advisor, our allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the administration agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our chief financial officer and any administrative support staff. Any potential conflict of interest arising as a result of our arrangements with our Advisor could have a material adverse effect on our business, results of operations and financial condition.
 
Our incentive fee may impact our Advisor’s structuring of our investments, including by causing our Advisor to pursue speculative investments.
 
The incentive fee payable by us to our Advisor may create an incentive for our Advisor to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to our Advisor is calculated based on a percentage of our return on invested capital. This may encourage our Advisor to use leverage to increase the return on our investments. Under certain
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circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our common stock. In addition, our Advisor receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, our Advisor may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income-producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. In addition, the incentive fee may encourage our Advisor to pursue different types of investments or structure investments in ways that are more likely to result in warrant gains or gains on equity investments, including upon exercise of equity participation rights, which are inconsistent with our investment strategy and disciplined underwriting process.
 
The incentive fee payable by us to our Advisor also may induce our Advisor to pursue investments on our behalf that have a deferred interest feature, even if such deferred payments would not provide cash necessary to enable us to pay current distributions to our stockholders. Under these investments, we would accrue interest over the life of the investment but would not receive the cash income from the investment until the end of the term. Our net investment income used to calculate the income portion of our investment fee, however, includes accrued interest. Thus, a portion of this incentive fee would be based on income that we have not yet received in cash. In addition, the “catch-up” portion of the incentive fee may encourage our Advisor to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in the timing and amounts of dividends. Our governing documents do not limit the number of loans we may make with deferred interest features or the proportion of our income we derive from such loans. For the fiscal years ended December 31, 2008 and December 31, 2009 and the six month period ended June 30, 2010, we derived approximately 1.60%, 3.42% and 4.80%, respectively, of our income from the deferred interest component of our loans and approximately 2.74%, 4.82% and 3.75%, respectively, of our income from discount accretion associated with warrants we have received in connection with the making of our loans.
 
If we are unable to manage our future growth effectively, we may be unable to achieve our investment objective, which could adversely affect our business, results of operations and financial condition and cause the value of your investment in us to decline.
 
Our ability to achieve our investment objective will depend on our ability to achieve and sustain growth, which will depend, in turn, on our Advisor’s direct origination capabilities and disciplined underwriting process in identifying, evaluating, financing, investing in and monitoring suitable companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our Advisor’s marketing capabilities, management of the investment process, ability to provide efficient services and access to financing sources on acceptable terms. In addition to monitoring the performance of our existing investments, our Advisor may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow the rate of investment. If we fail to manage our future growth effectively, our business, results of operations and financial condition could be materially adversely affected and the value of your investment in us could decrease.
 
Our board of directors may change our operating policies and strategies, including our investment objective, without prior notice or stockholder approval, the effects of which may adversely affect our business.
 
Our board of directors may modify or waive our current operating policies and strategies, including our investment objectives, without prior notice and without stockholder approval (provided that no such modification or waiver may change the nature of our business so as to cease to be, or withdraw our election, as a business development company as provided by the 1940 Act without stockholder approval at a special meeting called upon written notice of not less than ten or more than sixty dates before the date of such meeting). We cannot predict the effect any changes to our current operating policies and strategies would have on our business, results of operations or financial condition or on the value of our stock. However, the effects of any changes might adversely affect our business, any or all of which could negatively impact our ability to pay dividends or cause you to lose all or part of your investment in us.
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Our quarterly and annual operating results may fluctuate due to the nature of our business.
 
We could experience fluctuations in our quarterly and annual operating results due to a number of factors, some of which are beyond our control, including: our ability to make investments in companies that meet our investment criteria, the interest rate payable on our loans, the default rate on these investments, the level of our expenses, variations in, and the timing of, the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. For example, we have historically experienced greater investment activity during the second and fourth quarters relative to other periods. As a result of these factors, you should not rely on the results for any prior period as being indicative of our performance in future periods.
 
Our business plan and growth strategy depends to a significant extent upon our Advisor’s referral relationships. If our Advisor is unable to develop new or maintain existing relationships, or if these relationships fail to generate investment opportunities, our business could be materially adversely affected.
 
We have historically depended on our Advisor’s referral relationships to generate investment opportunities. For us to achieve our future business objectives, members of our Advisor will need to maintain these relationships with venture capital and private equity firms and management teams and legal firms, accounting firms, investment banks and other lenders, and we will rely to a significant extent upon these relationships to provide us with investment opportunities. If they fail to maintain their existing relationships or develop new relationships with other firms or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, persons with whom our Advisor has relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will lead to the origination of debt or other investments.
 
Our Advisor can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, results of operations or financial condition.
 
Under our investment management agreement, our Advisor has the right to resign at any time, including during the first two years following the investment management agreement’s effective date, upon not more than 60 days’ written notice, whether we have found a replacement or not. If our Advisor resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so, our operations are likely to be disrupted, our business, results of operations and financial condition and our ability to pay distributions may be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Advisor and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of new management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, results of operations or financial condition.
 
Our ability to enter into transactions with our affiliates will be restricted.
 
As a business development company, we will be prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be considered our affiliate for purposes of the 1940 Act. We will generally be prohibited from buying or selling any security from or to an affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with an affiliate, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to that person or certain of that person’s affiliates, or entering into prohibited joint transactions with those persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.
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We will incur significant costs as a result of being a publicly traded company.
 
As a publicly traded company, we will incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the SEC.
 
Terrorist attacks and other catastrophic events may disrupt the businesses in which we invest and harm our operations and our profitability.
 
Terrorist attacks and threats, escalation of military activity or acts of war may significantly harm our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the United States or United States businesses. Such attacks or armed conflicts in the United States or elsewhere may impact the businesses in which we invest directly or indirectly, by undermining economic conditions in the United States or elsewhere. In addition, because many of our portfolio companies operate and rely on network infrastructure and enterprise applications and internal technology systems for development, marketing, operational, support and other business activities, a disruption or failure of any or all of these systems in the event of a major telecommunications failure, cyber-attack, fire, earthquake, severe weather conditions or other catastrophic event could cause system interruptions, delays in product development and loss of critical data and could otherwise disrupt their business operations. Losses resulting from terrorist attacks are generally uninsurable.
 
Risks Related to our Investments
 
We have not yet identified many of the potential investment opportunities for our portfolio that we will invest in with the proceeds of this offering.
 
We have not yet identified many of the potential investment opportunities for our portfolio that we will acquire with the proceeds of this offering. Our investments will be selected by our Advisor, subject to the approval of its investment committee. Our stockholders will not have input into our Advisor’s investment decisions. As a result, you will be unable to evaluate any future portfolio company investments prior to purchasing shares of our common stock in this offering. These factors will increase the uncertainty, and thus the risk, of investing in our shares of common stock.
 
If our investments do not meet our performance expectations, you may not receive distributions.
 
We intend to make distributions of income on a quarterly basis to our stockholders. We may not be able to achieve operating results that will allow us to make distributions at a specific level or increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may be limited in our ability to make distributions. See “Regulation.” Also, restrictions and provisions in any existing or future credit facilities may limit our ability to make distributions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including failure to obtain, or possible loss of, the federal income tax benefits allowable to RICs. See “Material U.S. Federal Income Tax Considerations.” We cannot assure you that you will receive distributions at a particular level or at all.
 
Most of our portfolio companies will need additional capital, which may not be readily available.
 
Our portfolio companies will typically require substantial additional financing to satisfy their continuing working capital and other capital requirements and service the interest and principal payments on our investments. We cannot predict the circumstances or market conditions under which our portfolio companies will seek additional capital. Each round of institutional equity financing is typically intended to provide a company with only enough capital to reach the next stage of development. It is possible that one or more of our portfolio companies will not be able to raise additional financing or may be able to do so only at a price or on terms that are unfavorable to the portfolio company, either of which would negatively impact our investment returns. Some of these companies may be unable to obtain sufficient financing from private investors, public capital markets or lenders thereby requiring these companies to cease or curtail business operations. Accordingly, investing in these types of companies
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generally entails a higher risk of loss than investing in companies that do not have significant incremental capital raising requirements.
 
Economic recessions or downturns could adversely affect our business and that of our portfolio companies which may have an adverse effect on our business, results of operations and financial condition.
 
General economic conditions may affect our activities and the operation and value of our portfolio companies. Economic slowdowns or recessions may result in a decrease of institutional equity investment, which would limit our lending opportunities. Furthermore, many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
 
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the loans that we hold. We may incur expenses to the extent necessary to recover our investment upon default or to negotiate new terms with a defaulting portfolio company. These events could harm our financial condition and operating results.
 
Our investment strategy will focus on investments in development-stage companies in our Target Industries, which are subject to many risks, including volatility, intense competition, shortened product life cycles and periodic downturns, and are typically rated below “investment grade”.
 
We intend to invest, under normal circumstances, most of the value of our total assets (including the amount of any borrowings for investment purposes) in development-stage companies, which may have relatively limited operating histories, in our Target Industries. Many of these companies may have narrow product lines and small market shares, compared to larger established publicly-owned firms, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. The revenues, income (or losses) and valuations of development-stage companies in our Target Industries can and often do fluctuate suddenly and dramatically. For these reasons, investments in our portfolio companies, if rated by one or more ratings agency, would typically be rated below “investment grade,” which refers to securities rated by ratings agencies below the four highest rating categories. These companies may also have more limited access to capital and higher funding costs. In addition, development-stage technology markets are generally characterized by abrupt business cycles and intense competition, and the competitive environment can change abruptly due to rapidly evolving technology. Therefore, our portfolio companies may face considerably more risk than companies in other industry sectors. Accordingly, these factors could impair their cash flow or result in other events, such as bankruptcy, which could limit their ability to repay their obligations to us and may materially adversely affect the return on, or the recovery of, our investments in these businesses.
 
Because of rapid technological change, the average selling prices of products and some services provided by development-stage companies in our Target Industries have historically decreased over their productive lives. These decreases could adversely affect their operating results and cash flow, their ability to meet obligations under their debt securities and the value of their equity securities. This could, in turn, materially adversely affect our business, financial condition and results of operations.
 
Any unrealized depreciation we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
 
As a business development company, we will be required to carry our investments at fair value which shall be the market value of our investments or, if no market value is ascertainable, at the fair value as determined in good
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faith pursuant to procedures approved by our board of directors in accordance with our valuation policy. We are not permitted to maintain a reserve for loan losses. Decreases in the fair values of our investments will be recorded as unrealized depreciation. Any unrealized depreciation in our loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately reduces our income available for distribution in future periods.
 
If the assets securing the loans we make decrease in value, we may not have sufficient collateral to cover losses and may experience losses upon foreclosure.
 
We believe our portfolio companies generally will be able to repay our loans from their available capital, from future capital-raising transactions or from cash flow from operations. However, to mitigate our credit risks, we typically take a security interest in all or a portion of the assets of our portfolio companies, including the equity interests of their subsidiaries. There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to appraise or sell in a timely manner and may fluctuate in value based upon the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, although such loan is secured we may not receive principal and interest payments according to the loan’s terms and the value of the collateral may not be sufficient to recover our investment should we be forced to enforce our remedies.
 
In addition, because we intend to invest in development-stage companies in our Target Industries, a substantial portion of the assets securing our investment may be in the form of intellectual property, if any, inventory, equipment, cash and accounts receivables. Intellectual property, if any, which secures a loan could lose value if the company’s rights to the intellectual property are challenged or if the company’s license to the intellectual property is revoked or expires. In addition, in lieu of a security interest in the intellectual property we may sometimes obtain a security interest in all assets of the portfolio company other than intellectual property and also obtain a commitment by the portfolio company not to grant liens to any other creditor on the company’s intellectual property. In these cases, we may have additional difficulty recovering our principal in the event of a foreclosure. Similarly, any equipment securing our loan may not provide us with the anticipated security if there are changes in technology or advances in new equipment that render the particular equipment obsolete or of limited value or if the company fails to adequately maintain or repair the equipment. Any one or more of the preceding factors could materially impair our ability to recover principal in a foreclosure.
 
The lack of liquidity in our investments may adversely affect our business, and if we need to sell any of our investments, we may not be able to do so at a favorable price. As a result, we may suffer losses.
 
We plan to generally invest in loans with terms of up to four years and hold such investments until maturity, unless earlier prepaid, and we do not expect that our related holdings of equity securities will provide us with liquidity opportunities in the near-term. We expect to primarily invest in companies whose securities are not publicly-traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. We may also face other restrictions on our ability to liquidate an investment in a public portfolio company to the extent that we possess material non-public information regarding the portfolio company. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to dispose of our investments in the near term. However, we may be required to do so in order to maintain our qualification as a business development company and as a RIC if we do not satisfy one or more of the applicable criteria under the respective regulatory frameworks. Because most of our investments are illiquid, we may be unable to dispose of them, in which case we could fail to qualify as a RIC and/or BDC, or we may not be able to dispose of them at favorable prices, and as a result, we may suffer losses.
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Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
 
We plan to invest primarily in loans issued by our portfolio companies. Some of our portfolio companies will be permitted to have other debt that ranks equally with, or senior to, our loans in the portfolio company. By their terms, these debt instruments may provide that the holders thereof are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of our loans. These debt instruments may prohibit the portfolio companies from paying interest on or repaying our investments in the event of, and during, the continuance of a default under the debt instruments. In addition, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any payment in respect of our investment. After repaying senior creditors, a portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with our loans, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy.
 
There may be circumstances where our loans could be subordinated to claims of other creditors or we could be subject to lender liability claims.
 
Even though we may structure certain of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a portfolio company’s business, including in rendering significant managerial assistance, or instances where we exercise control over the portfolio company.
 
An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
 
We plan to invest primarily in privately held companies. Generally, very little public information exists about these companies, and we will be required to rely on the ability of our Advisor to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and a smaller market presence than larger competitors. They are thus generally more vulnerable to economic downturns and may experience substantial variations in operating results. These factors could affect our investment returns.
 
In addition, our success depends, in large part, upon the abilities of the key management personnel of our portfolio companies, who are responsible for the day-to-day operations of our portfolio companies. Competition for qualified personnel is intense at any stage of a company’s development. The loss of one or more key managers can hinder or delay a company’s implementation of its business plan and harm its financial condition. Our portfolio companies may not be able to attract and retain qualified managers and personnel. Any inability to do so may negatively affect our investment returns.
 
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
 
We will be subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. For example, most of our debt investments have, historically, been repaid prior to maturity by our portfolio companies. At the time of a liquidity event, such as a sale of the business, refinancing or public offering, many of our portfolio companies have availed themselves of the opportunity to repay our loans prior to maturity. Our investments generally allow for repayment at any time subject to certain penalties. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid,
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and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elects to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.
 
Our business and growth strategy could be adversely affected if government regulations, priorities and resources impacting the industries in which our portfolio companies operate change.
 
Some of our portfolio companies operate in industries that are highly regulated by federal, state and/or local agencies. Changes in existing laws, rules or regulations, or judicial or administrative interpretations thereof, or new laws, rules or regulations could have an adverse impact on the business and industries of our portfolio companies. In addition, changes in government priorities or limitations on government resources could also adversely impact our portfolio companies. We are unable to predict whether any such changes in laws, rules or regulations will occur and, if they do occur, the impact of these changes on our portfolio companies and our investment returns.
 
Our portfolio companies operating in the life science industry are subject to extensive government regulation and certain other risks particular to that industry.
 
As part of our investment strategy, we plan to invest in companies in the life science industry that are subject to extensive regulation by the Food and Drug Administration, or FDA, and to a lesser extent, other federal and state agencies. If any of these portfolio companies fail to comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect their operations. Portfolio companies that produce medical devices or drugs are subject to the expense, delay and uncertainty of the regulatory approval process for their products and, even if approved, these products may not be accepted in the marketplace. In addition, new laws, regulations or judicial interpretations of existing laws and regulations might adversely affect a portfolio company in this industry. Portfolio companies in the life science industry may also have a limited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us.
 
If our portfolio companies are unable to commercialize their technologies, products, business concepts or services, the returns on our investments could be adversely affected.
 
The value of our investments in our portfolio companies may decline if they are not able to commercialize their technology, products, business concepts or services. Additionally, although some of our portfolio companies may already have a commercially successful product or product line at the time of our investment, technology-related products and services often have a more limited market or life span than products in other industries. Thus, the ultimate success of these companies often depends on their ability to continually innovate in increasingly competitive markets. If they are unable to do so, our investment returns could be adversely affected and their ability to service their debt obligations to us over the life of the loan could be impaired. Our portfolio companies may be unable to successfully acquire or develop any new technologies and the intellectual property they currently hold may not remain viable. Even if our portfolio companies are able to develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Neither our portfolio companies nor we will have any control over the pace of technology development. Commercial success is difficult to predict, and the marketing efforts of our portfolio companies may not be successful.
 
If our portfolio companies are unable to protect their intellectual property rights, our business and prospects could be harmed, and if portfolio companies are required to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced.
 
Our future success and competitive position will depend in part upon the ability of our portfolio companies to obtain, maintain and protect proprietary technology used in their products and services. The intellectual property held by our portfolio companies often represents a substantial portion of the collateral securing our investments
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and/or constitutes a significant portion of the portfolio companies’ value that may be available in a downside scenario to repay our loans. Our portfolio companies will rely, in part, on patent, trade secret and trademark law to protect that technology, but competitors may misappropriate their intellectual property, and disputes as to ownership of intellectual property may arise. Portfolio companies may, from time to time, be required to institute litigation to enforce their patents, copyrights or other intellectual property rights, protect their trade secrets, determine the validity and scope of the proprietary rights of others or defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources. Similarly, if a portfolio company is found to infringe or misappropriate a third party’s patent or other proprietary rights, it could be required to pay damages to the third party, alter its products or processes, obtain a license from the third party and/or cease activities utilizing the proprietary rights, including making or selling products utilizing the proprietary rights. Any of the foregoing events could negatively affect both the portfolio company’s ability to service our debt investment and the value of any related debt and equity securities that we own, as well as any collateral securing our investment.
 
We do not expect to control any of our portfolio companies.
 
We do not expect to control any of our portfolio companies, even though our debt agreements may contain certain restrictive covenants that limit the business and operations of our portfolio companies. We also do not intend to maintain a control position to the extent we own equity interests in any portfolio company. As a result, we will be subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity of the investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and we may therefore, suffer a decrease in the value of our investments.
 
Risks Related to this Offering and our Common Stock
 
Prior to this offering, there has been no public market for our common stock, and we cannot assure you that the market price of shares of our common stock will not decline following the offering.
 
Prior to this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. If an active trading market does not develop, you may have difficulty selling any common stock that you buy and the value of your shares may be impaired. We also cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which it will trade after this offering or to any other established criteria of our value. Shares of closed-end management investment companies offered in an initial public offering often trade at a discount to the initial offering price due to sales loads, underwriting discounts and related offering expenses. In addition, shares of closed-end management investment companies have in the past frequently traded at discounts to their net asset values and our stock may also be discounted in the market. This characteristic of closed-end management investment companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether shares of our common stock will trade above, at or below our net asset value. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell shares of common stock purchased in this offering soon after the offering. In addition, if our common stock trades below its net asset value, we will generally not be able to sell additional shares of our common stock to the public at its market price without first obtaining the approval of our stockholders (including our unaffiliated stockholders) and our independent directors.
 
Subsequent sales in the public market of substantial amounts of our common stock issued to insiders or others may have an adverse effect on the market price of our common stock.
 
Upon consummation of this offering, we will have           shares of common stock outstanding (or           shares of common stock if the over-allotment option is fully exercised). Of these shares, the           shares sold in this offering will be freely tradeable and approximately           shares of our common stock will have been issued to our officers, directors and existing stockholders. Approximately     % of the shares
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of our common stock issued to the selling stockholder in the Share Exchange are included in the offering. We and our executive officers and directors and our other stockholders, including the selling stockholder, will be subject to agreements with the underwriters that restrict our and their ability to transfer our stock for a period of 180 days from the date of this prospectus. Approximately one out of every           publicly issued shares outstanding upon completion of the offering will be subject to such agreements. In the event that either (a) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (b) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the “lock-up” restrictions will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. See “Underwriters.” The shares sold by the selling stockholder in this offering will not be subject to this lock-up agreement. After the lock-up agreements expire, an aggregate of           additional shares of our common stock will be eligible for sale in the public market in accordance with Rule 144 under the Securities Act. Sales of substantial amounts of our common stock or the availability of such shares for sale, including by insiders, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, our ability to raise additional capital through the sale of equity securities could be impaired should we desire to do so.
 
Our common stock price may be volatile and may decrease substantially.
 
The trading price of our common stock following this offering may fluctuate substantially. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay and the liquidity of our common stock may be limited, in each case depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following:

 	• 	price and volume fluctuations in the overall stock market or in the market for business development companies from time to time;	
 	 	 	
 	• 	investor demand for our shares of common stock;	
 	 	 	
 	• 	significant volatility in the market price and trading volume of securities of registered closed-end management investment companies, business development companies or other financial services companies;	
 	 	 	
 	• 	our inability to raise capital, borrow money or deploy or invest our capital;	
 	 	 	
 	• 	fluctuations in interest rates;	
 	 	 	
 	• 	any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;	
 	 	 	
 	• 	operating performance of companies comparable to us;	
 	 	 	
 	• 	changes in regulatory policies or tax guidelines with respect to RICs, business development companies or SBICs;	
 	 	 	
 	• 	not electing or losing RIC status;	
 	 	 	
 	• 	actual or anticipated changes in our earnings or fluctuations in our operating results;	
 	 	 	
 	• 	changes in the value of our portfolio of investments;	
 	 	 	
 	• 	general economic conditions, trends and other external factors;	
 	 	 	
 	• 	departures of key personnel; or	
 	 	 	
 	• 	loss of a major source of funding.	
 
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
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We may allocate the net proceeds from this offering in ways with which you may not agree.
 
We will have significant flexibility in investing the net proceeds of this offering and may use the net proceeds from this offering in ways with which you may not agree or for purposes other than those contemplated at the time of the offering. We will also pay operating expenses, and may pay other expenses such as due diligence expenses related to potential new investments, from net proceeds. Our ability to achieve our investment objective may be limited to the extent that net proceeds of this offering, pending full investment, are used to pay operating or other expenses.
 
We will initially invest a portion of the net proceeds of this offering in high-quality short-term investments, which will generate lower rates of return than those expected from investments made in accordance with our investment objective.
 
We will initially invest a portion of the net proceeds of this offering in cash, cash equivalents, U.S. government securities and other high-quality short-term investments. These securities may earn yields substantially lower than the income that we anticipate receiving once these proceeds are fully invested in accordance with our investment objective.
 
Investing in shares of our common stock may involve an above average degree of risk.
 
The investments we make in accordance with our investment objective may result in a higher amount of risk, volatility or loss of principal than alternative investment options. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our common stock may not be suitable for investors with lower risk tolerance.
 
Investors in this offering will incur immediate dilution upon the closing of this offering.
 
In connection with the Distribution and Share Exchange, we will issue common stock equal to approximately $      million, which represents the net asset value of Compass Horizon as of June 30, 2010, to the Compass Horizon Owners in exchange for their respective interests, as described in the section entitled “The Exchange Transaction.” The Share Exchange, however, will not take place until immediately prior to our election to be treated as a business development company under the 1940 Act.
 
Furthermore, after giving effect to the sale of our common stock in this offering at an assumed initial public offering price of $      per share (the mid-point of the range set forth on the cover of this prospectus), and after deducting estimated underwriting discounts and estimated offering and Share Exchange expenses payable by us, our as-adjusted pro forma net asset value as of          , 2010 would have been approximately $      million, or $      per share. This represents an immediate increase in our net asset value per share of $      to the Compass Horizon Owners and dilution in net asset value per share of $      to new investors who purchase shares in this offering. See “Dilution” for more information.
 
Anti-takeover provisions in our charter documents and other agreements and certain provisions of the Delaware General Corporation Law could deter takeover attempts and have an adverse impact on the price of our common stock.
 
The Delaware General Corporation Law, our certificate of incorporation and our bylaws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. Among other things, our certificate of incorporation and bylaws:

 	• 	provide for a classified board of directors, which may delay the ability of our stockholders to change the membership of a majority of our board of directors;	
 	 	 	
 	• 	authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;	
 	 	 	
 	• 	do not provide for cumulative voting;	

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 	• 	provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;	
 	 	 	
 	• 	limit the calling of special meetings of stockholders;	
 	 	 	
 	• 	provide that our directors may be removed only for cause;	
 	 	 	
 	• 	require supermajority voting to effect certain amendments to our certificate of incorporation and our bylaws; and	
 	 	 	
 	• 	require stockholders to provide advance notice of new business proposals and director nominations under specific procedures.	
 
These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price of our common stock. See “Description of Capital Stock.” Our Credit Facility also contains a covenant that prohibits us from merging or consolidating with any other person or selling all or substantially all of our assets without the prior written consent of WestLB. If we were to engage in such a transaction without such consent, WestLB could accelerate our repayment obligations under, and/or terminate, our Credit Facility. In addition, the SBA prohibits, without prior SBA approval, a “change of control” of an SBIC. A “change of control” is any event which would result in the transfer of power, direct or indirect, to direct the management and policies of an SBIC, including through ownership. To the extent that we form an SBIC subsidiary, this would prohibit a change of control of us without prior SBA approval.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
In addition to factors previously identified elsewhere in this prospectus, including the “Risk Factors” section of this prospectus, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

 	• 	our future operating results, including the performance of our existing loans and warrants;	
 	 	 	
 	• 	the introduction, withdrawal, success and timing of business initiatives and strategies;	
 	 	 	
 	• 	changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;	
 	 	 	
 	• 	the relative and absolute investment performance and operations of our Advisor;	
 	 	 	
 	• 	the impact of increased competition;	
 	 	 	
 	• 	the impact of investments we intend to make and future acquisitions and divestitures;	
 	 	 	
 	• 	the unfavorable resolution of legal proceedings;	
 	 	 	
 	• 	our business prospects and the prospects of our portfolio companies;	
 	 	 	
 	• 	the projected performance of other funds managed by our Advisor;	
 	 	 	
 	• 	the impact, extent and timing of technological changes and the adequacy of intellectual property protection;	
 	 	 	
 	• 	our regulatory structure and tax status;	
 	 	 	
 	• 	the adequacy of our cash resources and working capital;	
 	 	 	
 	• 	the timing of cash flows, if any, from the operations of our portfolio companies;	
 	 	 	
 	• 	the impact of interest rate volatility on our results, particularly if we use leverage as part of our investment strategy;	
 	 	 	
 	• 	the ability of our portfolio companies to achieve their objective;	
 	 	 	
 	• 	our ability to cause a subsidiary to become a licensed SBIC;	
 	 	 	
 	• 	the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our Advisor;	
 	 	 	
 	• 	our contractual arrangements and relationships with third parties;	
 	 	 	
 	• 	our ability to access capital and any future financings by us;	
 	 	 	
 	• 	the ability of our Advisor to attract and retain highly talented professionals; and	
 	 	 	
 	• 	the impact of changes to tax legislation and, generally, our tax position.	
 
This prospectus, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “plan,” “potential,” “project,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.
 
Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. These forward-looking statements do not meet the safe harbor for forward-looking statements pursuant to Section 27A of the Securities Act. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
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BUSINESS DEVELOPMENT COMPANY
AND REGULATED INVESTMENT COMPANY ELECTIONS
 
In connection with this offering, we will file an election to be regulated as a business development company under the 1940 Act. In addition, we intend to elect to be treated, and intend to qualify, as a RIC under Subchapter M of the Code, commencing with our taxable year ending on December 31, 2010. Our election to be regulated as a business development company and our election to be treated as a RIC will have a significant impact on our future operations. Some of the most important effects on our future operations of our election to be regulated as a business development company and our election to be treated as a RIC are outlined below.
 
Investment Reporting
 
We will report our investments at fair value with changes in value reported through our statement of operations. In accordance with the requirements of Article 6 of Regulation S-X, we will report all of our investments, including debt investments, at fair value. Changes in these values will be reported through our statement of operations under the caption entitled “total net change in unrealized appreciation (depreciation) from investments.” See “Determination of Net Asset Value.”
 
Income Tax Expense
 
We generally will be required to pay income taxes only on the portion of our taxable income we do not distribute to stockholders (actually or constructively). As a RIC, so long as we meet certain minimum distribution, source-of-income and asset diversification requirements, we generally will be required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains, if any.
 
Use of Leverage
 
Our ability to use leverage as a means of financing our portfolio of investments will be limited. As a business development company, we will be required to meet a coverage ratio of total assets to total senior securities of at least 200%. For this purpose, senior securities include all borrowings and any preferred stock we may issue in the future. Additionally, our ability to continue to utilize leverage as a means of financing our portfolio of investments will be limited by this asset coverage test. In connection with this offering and our intended election to be regulated as a business development company, we expect to file a request with the SEC for exemptive relief to allow us to exclude any indebtedness guaranteed by the SBA and issued by our SBIC subsidiary from the 200% asset coverage requirements applicable to us. While the SEC has granted exemptive relief in substantially similar circumstances in the past, no assurance can be given that an exemptive order will be granted.
 
Distribution Policy
 
As a RIC, we intend to distribute to our stockholders substantially all of our income, except possibly for certain net long-term capital gains. We may make deemed distributions to our stockholders of some or all of our retained net long-term capital gains. If this happens, you will be treated as if you had received an actual distribution of the capital gains and reinvested the net after-tax proceeds in us. In general, you also would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the deemed distribution. See “Distributions” and “Material U.S. Federal Income Tax Considerations.”
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THE EXCHANGE TRANSACTION
 
We were formed in March 2010 to continue and expand the business of Compass Horizon. Compass Horizon is the entity that currently owns all of the portfolio investments that we will own upon the closing of this offering. From commencing operations in March 2008 through the date of this prospectus, all of the outstanding limited liability company interests in Compass Horizon have been owned by the Compass Horizon Owners.
 
Prior to the completion of the offering, based upon our as adjusted net asset value of $65.8 million as of June 30, 2010, Compass Horizon intends to make a cash distribution to CHP of approximately $16.0 million from net income and as a return of capital, which we call the “Pre-IPO Distribution.”
 
After the Pre-IPO Distribution and immediately prior to the completion of the offering, the Compass Owners will exchange their membership interests in Compass Horizon for approximately           shares of our common stock, which we call the “Share Exchange.” Upon completion of the Share Exchange and this offering, Compass Horizon will become our wholly owned subsidiary and we will effectively own all of Compass Horizon’s assets, including all of its investments and its subsidiary.
 
Concurrent with this offering, CHP will offer to sell           shares of our common stock, which it received in the Share Exchange. After the completion of this offering, assuming the sale of           shares of our common stock by the selling stockholder and the issuance of           shares of our common stock by us in this offering, CHP will own           shares of our common stock, or     % of the total outstanding shares of our common stock. Upon completion of the Share Exchange and this offering, HTF-CHF will own           shares of our common stock, or     % of the total outstanding shares of our common stock.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
The following unaudited pro forma condensed consolidated financial information sets forth our unaudited pro forma and historical consolidated statements of operations for the six months ended June 30, 2010 and the year ended December 31, 2009 and the unaudited pro forma and historical consolidated balance sheets at June 30, 2010. Such information is based on the audited and unaudited financial statements of Compass Horizon appearing elsewhere in this prospectus, as adjusted to illustrate the estimated pro forma effects of the pro forma adjustments described below. Compass Horizon is considered to be our predecessor for accounting purposes and its consolidated financial statements are our historical consolidated financial statements.
 
The unaudited pro forma condensed consolidated balance sheet at June 30, 2010, and the unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2010 and the year ended December 31, 2009, give effect to the following:

 	• 	our qualification as a BDC and changes in accounting principles as a result of our election to be treated as a BDC immediately following the completion of this offering, which requires all of our investments to be carried at market value, or for investments with no ascertainable market value, fair value as determined in good faith by our board of directors;	
 	 	 	
 	• 	our qualification and election to be treated as a RIC, including the income tax consequences of our election, following the completion of this offering;	
 	 	 	
 	• 	the Pre-IPO Distribution and the Share Exchange;	
 	 	 	
 	• 	the sale of           shares of common stock in this offering and the use of proceeds from this offering; and	
 	 	 	
 	• 	the consolidation of our wholly owned special purpose financing subsidiaries, Compass Horizon and Credit I, which will continue to be consolidated with the Company following the completion of this offering.	
 
The unaudited pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. Presentation of the unaudited pro forma financial information is prepared in conformity with Article 11 of Regulation S-X.
 
The unaudited pro forma condensed consolidated financial information was prepared on a basis consistent with that used in preparing our audited consolidated financial statements and includes all adjustments, consisting of normal and recurring items, that we consider necessary for a fair presentation of the financial position and results of operations for the unaudited periods.
 
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the sections of this prospectus entitled “The Exchange Transaction,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical consolidated financial statements and related notes thereto included elsewhere in this prospectus. The unaudited pro forma condensed consolidated financial information is for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial position that we would have reported had the pro forma adjustments and this offering been completed on the dates indicated and should not be taken as representative of our future consolidated results of operations or financial position.
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Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2010

 	 	 	 	 	 	 	 	 	 	 	Adjustments
	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	for this
	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Offering and
	 	 	Horizon
	 	
 	 	Compass
	 	 	 	 	 	 	 	 	Pre-IPO
	 	 	Technology
	 	
 	 	Horizon Funding
	 	 	Adjustments
	 	 	 	 	 	Distribution
	 	 	Finance
	 	
 	 	Company LLC —
	 	 	for BDC/RIC
	 	 	As adjusted for
	 	 	and Share
	 	 	Corporation
	 	
 	 	Historical	 	 	Elections	 	 	RIC/BDC Elections	 	 	Exchange	 	 	Pro Forma	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	12,357,156	 	 	$	—	 	 	$	12,357,156	 	 	 	          	 	 	 	          	 	
Loans receivable	 	 	139,548,867	 	 	 	(367,578	)(A)	 	 	139,181,289	 	 	 	 	 	 	 	 	 	
Allowance for loan losses	 	 	(1,504,810	)	 	 	1,504,810	(B)	 	 	—	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans receivable, net	 	 	138,044,057	 	 	 	1,137,232	 	 	 	139,181,289	 	 	 	 	 	 	 	 	 	
Warrants	 	 	3,459,192	 	 	 	—	 	 	 	3,459,192	 	 	 	 	 	 	 	 	 	
Other assets	 	 	3,075,667	 	 	 	—	 	 	 	3,075,667	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	 	$	156,936,072	 	 	$	1,137,232	 	 	$	158,073,304	 	 	 	 	 	 	 	 	 	

LIABILITIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	 	$	91,263,261	 	 	$	—	 	 	$	91,263,261	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other liabilities	 	 	1,046,576	 	 	 	—	 	 	 	1,046,576	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES	 	 	92,309,837	 	 	 	—	 	 	 	92,309,837	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MEMBERS’ CAPITAL/
STOCKHOLDERS EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Members’ capital	 	 	64,479,715	 	 	 	1,504,810	(B)	 	 	65,984,525	 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive loss —	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized loss on interest rate swaps	 	 	(510,694	)	 	 	—	 	 	 	(510,694	)	 	 	 	 	 	 	 	 	
Unrealized gain on investments	 	 	657,214	 	 	 	(367,578	)(A)	 	 	289,636	 	 	 	 	 	 	 	 	 	
Common Stock	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Paid-in capital	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
MEMBERS’ CAPITAL/STOCKHOLDERS’ EQUITY	 	 	64,626,235	 	 	$	1,137,232	 	 	 	65,763,467	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND MEMBERS’ CAPITAL/STOCKHOLDERS’ EQUITY	 	$	156,936,072	 	 	$	1,137,232	 	 	$	158,073,304	 	 	 	 	 	 	 	 	 	

See notes to unaudited pro forma condensed consolidated financial information
40

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Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2010

 	 	 	 	 	 	 	 	 	 	 	Adjustments
	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	for this
	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Offering and
	 	 	Horizon
	 	
 	 	Compass
	 	 	 	 	 	 	 	 	Pre-IPO
	 	 	Technology
	 	
 	 	Horizon Funding
	 	 	Adjustments
	 	 	 	 	 	Distribution
	 	 	Finance
	 	
 	 	Company LLC —
	 	 	for BDC/RIC
	 	 	As adjusted for
	 	 	and Share
	 	 	Corporation
	 	
 	 	Historical	 	 	Elections	 	 	RIC/BDC Elections	 	 	Exchange	 	 	Pro Forma	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INCOME	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	7,897,266	 	 	$	—	 	 	$	7,897,266	 	 	 	          	 	 	 	          	 	
Other income	 	 	165,069	 	 	 	—	 	 	 	165,069	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total income	 	 	8,062,335	 	 	 	—	 	 	 	8,062,335	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Credit for loan losses	 	 	419,224	 	 	 	(419,224	)(B)	 	 	—	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income after provision for loan losses	 	 	8,481,559	 	 	 	(419,224	)	 	 	8,062,335	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	2,092,984	 	 	 	—	 	 	 	2,092,984	 	 	 	 	 	 	 	 	 	
Management fee expense	 	 	1,140,619	 	 	 	—	 	 	 	1,140,619	 	 	 	 	 	 	 	 	 	
Other expenses	 	 	207,536	 	 	 	—	 	 	 	207,536	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	3,441,139	 	 	 	—	 	 	 	3,441,139	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before net realized and unrealized gains (loss) on investments	 	 	5,040,420	 	 	 	(419,224	)	 	 	4,621,196	 	 	 	 	 	 	 	 	 	
Net realized loss on investments	 	 	(1,762	)	 	 	—	 	 	 	(1,762	)	 	 	 	 	 	 	 	 	
Net unrealized gain (loss) on investments	 	 	(162,275	)	 	 	398,374	(A)	 	 	236,099	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	4,876,383	 	 	$	(20,850	)	 	$	4,855,533	 	 	 	 	 	 	 	 	 	

See notes to unaudited pro forma condensed consolidated financial information
41

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Notes to 2010 Unaudited Pro Forma Condensed Consolidated Financial Information
 
Pro Forma Adjustments:
 
(A) Represents adjustment of our loans to fair value as required for a business development company. For a discussion of our valuation policy following this offering, please see “Determination of Net Asset Value.” For the six months ended June 30, 2010, the net unrealized gains on the loan portfolio was $398,374.
 
(B) Represents elimination of allowance for loan losses and provision for loan losses. In future periods, following our election to be treated as a business development company, we will no longer record an allowance for loan losses. We will value each individual loan and investment on a quarterly basis at fair value which shall be the market value, or, if no market value is ascertainable, at the fair value as determined in good faith pursuant to procedures approved by our board of directors in accordance with our valuation policy. The following is a summary of the changes in the allowance for loan losses:

 	 	Six Months Ended
	 	
 	 	June 30, 2010	 	
 	 	 	 	 	
Balance at beginning of period	 	$	1,924,034	 	
Credit for loan losses	 	 	(419,224	)	
Charge offs, net of recoveries	 	 	—	 	
 	 	 	 	 	
Balance at end of period	 	$	1,504,810	 	

(C) Pre-IPO Distribution, Member Interest Exchange for Common Stock and Offering-Related Adjustments

Pre-IPO distribution to Members:	 	 	 	 	
 	 	 	 	 	
Common stock	 	 	 	 	
 	 	 	 	 	
Members Interest exchange for Common Stock:	 	 	 	 	
Member interest	 	 	 	 	
Par value of common stock issued	 	 	 	 	
Paid-in capital	 	 	 	 	
 	 	 	 	 	
Represents estimated net proceeds from common stock offering:	 	 	 	 	
 	 	 	 	 	
Common stock	 	 	 	 	
Offering price	 	 	 	 	
 	 	 	 	 	
Estimated gross proceeds	 	 	 	 	
Estimated fees and expenses	 	 	 	 	
 	 	 	 	 	
Net proceeds	 	 	 	 	
 	 	 	 	 	
Less: Par value of common stock issued	 	 	 	 	
 	 	 	 	 	
Paid-in capital	 	 	 	 	

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Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2009

 	 	 	 	 	 	 	 	 	 	 	Adjustments
	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	for this
	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Offering and
	 	 	Horizon
	 	
 	 	Compass
	 	 	 	 	 	 	 	 	Pre-IPO
	 	 	Technology
	 	
 	 	Horizon Funding
	 	 	Adjustments
	 	 	 	 	 	Distribution
	 	 	Finance
	 	
 	 	Company LLC —
	 	 	for BDC/RIC
	 	 	As adjusted for
	 	 	and Share
	 	 	Corporation
	 	
 	 	Historical	 	 	Elections	 	 	RIC/BDC Elections	 	 	Exchange	 	 	Pro Forma	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INCOME	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	14,987,322	 	 	$	—	 	 	$	14,987,322	 	 	$	          	 	 	$	          	 	
Other income	 	 	338,986	 	 	 	—	 	 	 	338,986	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total income	 	 	15,326,308	 	 	 	—	 	 	 	15,326,308	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision for loan losses	 	 	(274,381	)	 	 	274,381	(B)	 	 	—	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income after provision for loan losses	 	 	15,051,927	 	 	 	274,381	 	 	 	15,326,308	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	4,244,804	 	 	 	—	 	 	 	4,244,804	 	 	 	 	 	 	 	 	 	
Management fee expense	 	 	2,202,268	 	 	 	—	 	 	 	2,202,268	 	 	 	 	 	 	 	 	 	
Other expenses	 	 	321,506	 	 	 	—	 	 	 	321,506	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	6,768,578	 	 	 	—	 	 	 	6,768,578	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before net realized and unrealized gains (loss) on investments	 	 	8,283,349	 	 	 	274,381	 	 	 	8,557,730	 	 	 	 	 	 	 	 	 	
Net realized gain on investments	 	 	137,696	 	 	 	—	 	 	 	137,696	 	 	 	 	 	 	 	 	 	
Net unrealized gain (loss) on investments	 	 	892,130	 	 	 	263,150	(A)	 	 	1,155,280	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	9,313,175	 	 	$	537,531	 	 	$	9,850,706	 	 	$	 	 	 	$	 	 	

See notes to unaudited pro forma condensed consolidated financial information
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Notes to 2009 Unaudited Pro Forma Condensed Consolidated Statement of Operations
 
Pro Forma Adjustments:
 
(A) Represents adjustment of our loans to fair value as required for a business development company. For a discussion of our valuation policy following this offering, please see “Determination of Net Asset Value.” Since our inception and through December 31, 2009, our net unrealized losses totaled $765,953, which is comprised of net unrealized losses of $1,029,102 in 2008 and unrealized gains of $263,150 in 2009.
 
(B) Represents elimination of the provision for loan losses. In future periods, following our election to be treated as a business development company, we will no longer record an allowance for loan losses. We will value each individual loan and investment on a quarterly basis at fair value which shall be the market value, or, if no market value is ascertainable, at the fair value as determined in good faith pursuant to procedures approved by our board of directors in accordance with our valuation policy. The following is a summary of the changes in the allowance for loan losses:

 	 	Year Ended
	 	
 	 	December 31, 2009	 	
 	 	 	 	 	
Balance at beginning of period	 	$	1,649,653	 	
Provision for loan losses	 	 	274,381	 	
Charge offs, net of recoveries	 	 	—	 	
 	 	 	 	 	
Balance at end of period	 	$	1,924,034	 	

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USE OF PROCEEDS
 
We are offering           shares of our common stock and the selling stockholder is offering           shares (based on the mid-point of the range set forth on the cover of this prospectus) of our common stock through the underwriters. The net proceeds of the offering of shares by us are estimated to be approximately $      (approximately $      if the underwriters exercise their over-allotment option to purchase additional shares in full) assuming an initial public offering price of $      per share (based on the mid-point of the range set forth on the cover of this prospectus) after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the shares sold by the selling stockholder.
 
We plan to use the net proceeds of this offering for new investments in portfolio companies in accordance with our investment objective and strategies described in this prospectus, for general working capital purposes, and for temporary repayment of debt under our credit facility (which amounts are subject to reborrowing). We will also pay operating expenses, including management and administrative fees, and may pay other expenses such as due diligence expenses of potential new investments, from the net proceeds of this offering. We anticipate that substantially all of the net proceeds of this offering will be used for the above purposes within nine months, depending on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. We may also use a portion of the net proceeds to capitalize an SBIC subsidiary to the extent our Advisor’s application to license such entity as an SBIC is approved. We cannot assure you we will achieve our targeted investment pace.
 
Pending such use, we will invest the remaining net proceeds of this offering primarily in cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less from the date of investment. These temporary investments may have lower yields than our other investments and, accordingly, may result in lower distributions, if any, during such period. See “Regulation — Temporary Investments” for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
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DISTRIBUTIONS
 
To the extent we have income available, we intend to make quarterly distributions to our stockholders beginning with our first full quarter after the completion of this offering. The timing and amount of our quarterly distributions, if any, will be determined by our board of directors. Any distributions to our stockholders will be declared out of assets legally available for distribution.
 
We intend to elect to be treated, and intend to qualify, as a RIC under Subchapter M of the Code commencing with our taxable year ending on December 31, 2010. To obtain the federal income tax benefits allowable to RICs, we will be required to distribute an amount equal to at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) 98% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for the one-year period generally ending on October 31st of the calendar year and (3) certain undistributed amounts from previous years on which we paid no U.S. federal income tax. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In such event, the consequences of our retention of net capital gains are as described under “Material U.S. Federal Income Tax Considerations.” We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, the 1940 Act asset coverage requirements or the terms of the senior securities, may prevent us from making distributions to our stockholders.
 
We intend to maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash distribution, each stockholder’s cash distributions will be automatically reinvested in additional shares of our common stock unless the stockholder specifically “opts out” of our dividend reinvestment plan so as to receive cash distributions. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal income tax consequences as if they received cash distributions. See “Dividend Reinvestment Plan” and “Material U.S. Federal Income Tax Considerations.”
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CAPITALIZATION
 
The following table sets forth our capitalization as of June 30, 2010:

 	• 	for Compass Horizon on an actual basis; and	
 	 	 	
 	• 	for Horizon Technology Finance Corporation on an as adjusted basis to reflect:	

 	• 	completion of the Pre-IPO Distribution;	
 	 	 	
 	• 	completion of the Share Exchange; and	
 	 	 	
 	• 	the sale of           shares of our common stock in this offering by us and the selling stockholder at an assumed initial public offering price of $      per share (the mid-point of the range set forth on the cover of this prospectus), after deducting estimated underwriting discounts and commissions and organizational and offering expenses of approximately $      million payable by us, and the use of proceeds from this offering.	
 
You should read this table together with “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in this prospectus.

 	 	As of June 30, 2010	 	
 	 	Compass Horizon
	 	 	Horizon Technology
	 	
 	 	Funding Company LLC	 	 	Finance Corporation	 	
 	 	Actual	 	 	As Adjusted	 	
 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	12,357,156	 	 	$	          	 	
 	 	 	 	 	 	 	 	 	
Total assets	 	 	156,936,072	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	
Borrowings	 	$	91,263,261	 	 	$	 	 	
Other liabilities	 	 	1,046,576	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total liabilities	 	$	92,309,837	 	 	$	 	 	
 	 	 	 	 	 	 	 	 	
Members’ capital / Stockholders’ equity:	 	 	 	 	 	 	 	 	
Member’s capital	 	$	64,479,715	 	 	$	 	 	
Accumulated other comprehensive loss	 	 	(510,694	)	 	 	 	 	
Unrealized gain on investments	 	 	657,214	 	 	 	 	 	
Common stock, par value $0.001 per share; 100,000,000 shares authorized,           shares outstanding, as adjusted	 	 	—	 	 	 	 	 	
Additional paid-in capital	 	 	—	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Member’s capital / Stockholders’ equity	 	$	64,626,235	 	 	$	          	 	

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DILUTION
 
If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as-adjusted pro forma net asset value per share of our common stock immediately after the completion of this offering.
 
Our net asset value as of June 30, 2010 was approximately $      million. Our pro forma net asset value as of June 30, 2010, would have been $      per share. We determined our pro forma net asset value per share before this offering by dividing the net asset value (total assets less total liabilities) as of June 30, 2010, by the pro forma number of shares of common stock outstanding as of June 30, 2010, after giving effect to the Pre-IPO Distribution and the exchange transaction occurring prior to the completion of this offering. See “The Exchange Transaction.”
 
After giving effect to the sale of           shares of our common stock in this offering at an assumed initial public offering price of $      per share (based on the mid-point of the range set forth on the cover of this prospectus) and after deducting the sales load (underwriting discount) and estimated offering expenses payable by us, our pro forma net asset value as of June 30, 2010, would have been approximately $      million, or $      per share, representing an immediate decrease in pro forma net asset value of $      per share to our existing stockholders and an immediate dilution of $      per share to new investors who purchase our common stock in the offering at the initial public offering price. The following table shows this immediate per share dilution:

Assumed initial public offering price per share	 	$	           	 	
Pro forma net asset value per share before this offering but after giving effect to the Exchange Transaction	 	$	 	 	
Pro forma net asset value per share after this offering	 	$	 	 	
Dilution per share to new investors(1)	 	$	 	 	

 	 	 	
(1)	 	To the extent the underwriters’ option to purchase additional shares is exercised, there will be further dilution to new investors.	

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SELECTED FINANCIAL AND OTHER DATA
 
Compass Horizon is considered to be our predecessor for accounting purposes and its consolidated financial statements are our historical consolidated financial statements. We have derived the selected historical consolidated balance sheet information as of December 31, 2009 and 2008 and the selected historical consolidated statement of operations information for the year ended December 31, 2009 and for the period from March 4, 2008 (inception) through December 31, 2008 from Compass Horizon’s financial statements included elsewhere in this prospectus, which were audited by McGladrey & Pullen LLP, an independent registered public accounting firm. We have derived the selected historical consolidated financial data as of June 30, 2010 and for the six months ended June 30, 2010 from the unaudited consolidated financial statements of Compass Horizon included elsewhere in this prospectus. The unaudited interim consolidated financial statements include all adjustments, consisting of normal and recurring items, that we consider necessary for a fair presentation of the financial position and results of operations for the unaudited periods. The interim results of operations are not necessarily indicative of operations for a full fiscal year.
 
The financial and other information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus.

 	 	Six Months
	 	 	 	 	 	Period from March 4, 2008
	 	
 	 	Ended
	 	 	Year Ended
	 	 	(Inception) Through
	 	
 	 	June 30, 2010	 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	(unaudited)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and other loan income	 	$	8,033,844	 	 	$	15,259,026	 	 	$	6,662,232	 	
Other interest income	 	 	28,491	 	 	 	67,282	 	 	 	358,820	 	
(Credit) provision for loan losses	 	 	(419,224	)	 	 	274,381	 	 	 	1,649,653	 	
Total expenses	 	 	3,441,139	 	 	 	6,768,578	 	 	 	4,031,815	 	
Net realized (loss) gains on warrants	 	 	(1,762	)	 	 	137,696	 	 	 	21,571	 	
Net unrealized gain (loss) on warrants	 	 	(162,275	)	 	 	892,130	 	 	 	(72,641	)	
Net income	 	$	4,876,383	 	 	$	9,313,175	 	 	$	1,288,514	 	
Other Data:	 	 	 	 	 	 	 	 	 	 	 	 	
Dollar-weighted average annualized yield on investment portfolio (1)	 	 	13.7	%	 	 	13.9	%	 	 	12.7	%	
Number of portfolio companies at period end	 	 	35	 	 	 	32	 	 	 	26	 	

 	 	As of
	 	 	As of
	 	 	As of
	 	
 	 	June 30, 2010	 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	(unaudited)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	
Gross loans receivable	 	$	141,901,012	 	 	$	112,571,708	 	 	$	94,023,357	 	
Cash and cash equivalents	 	 	12,357,156	 	 	 	9,892,048	 	 	 	20,024,408	 	
Total assets	 	 	156,936,072	 	 	 	124,868,013	 	 	 	115,214,888	 	
Borrowings	 	 	91,263,261	 	 	 	64,166,412	 	 	 	63,673,016	 	
Total liabilities	 	 	92,309,837	 	 	 	65,375,344	 	 	 	65,430,080	 	
Total members’ capital	 	 	64,626,235	 	 	 	59,492,669	 	 	 	49,784,808	 	

(1)	 	Throughout this prospectus, the dollar-weighted average yield on loans is computed as the (a) total interest and other loan income divided by (b) the average gross loans receivable. Income for 2008 was annualized as investing activities commenced in March 2008.	

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” appearing elsewhere herein.
 
Overview
 
We are an externally-managed finance company. Our investment objective is to generate current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We make secured loans to development-stage companies in our Target Industries which are backed by established venture capital and private equity firms. Our secured loans consist of term loans, revolving loans or equipment loans. Our loans are secured by all or a portion of the tangible and intangible assets of the borrower. We are managed by Horizon Technology Finance Management LLC, our Advisor. Our Advisor also provides the administrative services necessary for us to operate.
 
We believe our existing loan portfolio has performed well since its inception notwithstanding the economic downturn starting in 2008 and continuing through 2009, and we have no realized losses (charge-offs) in our loan portfolio since we commenced operations in March 2008. As of June 30, 2010, our loan portfolio consisted of 35 loans which totaled $141.9 million, and our members’ capital was $64.6 million.
 
Critical Accounting Policies
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements in accordance with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Following the completion of this offering as a consequence of our adopting investment company accounting pursuant to Article 6 of Regulation S-X, we will be required to change some of the accounting principles used to prepare our historical consolidated financial statements discussed in this section. For a more detailed discussion about these principles and the impact that these principals would have on our financial results, see “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Business Development Company and Regulated Investment Company Elections.”
 
We have identified the following items as critical accounting policies.
 
Allowance for Loan Losses
 
The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio as of the balance sheet date. The estimation of the allowance is based on a variety of factors, including past loan loss experience, the current credit profile of our borrowers, adverse situations that have occurred that may affect individual borrowers’ ability to repay, the estimated value of underlying collateral and general economic conditions. The loan portfolio is comprised of large balance loans that are evaluated individually for impairment and are risk-rated based upon a borrower’s individual situation, current economic conditions, collateral and industry-specific information that management believes is relevant in determining the potential occurrence of a loss event and in measuring impairment. The allowance for loan losses is sensitive to the risk rating assigned to each of the loans and to corresponding qualitative loss factors that we use to estimate the allowance. The factors are applied to the outstanding loan balances in estimating the allowance for loan losses. If necessary, based on performance factors related to specific loans, a specific allowance for loan losses is established for individual impaired loans. Increases or decreases to the allowance for loan losses are charged or credited to current period earnings through the
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provision (credit) for loan losses. Amounts determined to be uncollectible are charged against the allowance for loan losses, while amounts recovered on previously charged-off accounts increase the allowance for loan losses.
 
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.
 
Impaired loans also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. There have been no troubled debt restructurings since our inception.
 
For the three and six months ended June 30, 2010, the credit for loan losses was $0.1 million and $0.4 million, respectively. For the three and six months ended June 30, 2009, the provision for loan losses was $0.3 million and $0.3 million, respectively. For the year ended December 31, 2009 and the period ended December 31, 2008 the provision for loan losses was $0.3 million and $1.6 million, respectively. In future periods, following our election to be treated as a business development company, we will no longer record an allowance for loan losses. We will value each individual loan and investment on a quarterly basis at fair value which shall be the market value or, if no market value is ascertainable, at the fair value as determined in good faith by our board of directors in accordance with our valuation policy. Changes in these values will be recorded through our statement of operations. See “Determination of Net Asset Value” and “Unaudited Pro Forma Condensed Consolidated Financial Information.”
 
Warrant Valuation
 
In connection with substantially all of our lending arrangements, we receive warrants to purchase shares of stock from the borrower. Because the warrant agreements contain net exercise or “cashless” exercise provisions, the warrants qualify as derivative instruments. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are also recorded as unearned loan income on the grant date. The unearned income is recognized as interest income over the contractual life of the related loan in accordance with the Company’s income recognition policy. As all the warrants held are deemed to be derivatives, they are measured on a quarterly basis at fair value using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized gain or loss. Gains from the disposition of the warrants or stock acquired from the exercise of warrants, are recognized as realized gains.
 
We value the warrant assets incorporating the following material assumptions:

 	• 	Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding.	

 	• 	Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on guideline publicly traded companies within indices similar in nature to the underlying client companies issuing the warrant. A total of seven such indices were used. The weighted average volatility assumptions used for the warrant valuation at June 30, 2010, December 31, 2009 and June 30, 2009 were 29%, 29% and 25%, respectively.	

 	• 	The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.	

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 	• 	Other adjustments, including a marketability discount, are estimated based on management’s judgment about the general industry environment.	
 
Income Recognition
 
Interest on loans is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income on loans is determined using a method that results in a level rate of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid. No loans were on non-accrual status as of June 30, 2010 and December 31, 2009.
 
We receive a variety of fees from borrowers in the ordinary course of conducting our business, including advisory fees, commitment fees, amendment fees, non-utilization fees and prepayment fees (collectively, the “Fees”). In a limited number of cases, we may also receive a non-refundable deposit earned upon the termination of a transaction. Loan origination fees, net of certain direct origination costs, are deferred, and along with unearned income, are amortized as a level yield adjustment over the respective term of the loan. Fees for counterparty loan commitments with multiple loans are allocated to each loan based upon each loan’s relative fair value. When a loan is placed on non-accrual status, the amortization of the related Fee and unearned income is discontinued until the loan is returned to accrual status.
 
Certain loan agreements also require the borrower to make an end-of-term payment that is accrued into income over the life of the loan to the extent such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support the accrual or if we do not expect the borrower to be able to pay all principal and interest due.
 
Portfolio Composition and Investment Activity
 
As of June 30, 2010, December 31, 2009 and December 31, 2008, our loan portfolio consisted of 35, 32 and 26 loans, respectively, which had an aggregate book value of approximately $141.9 million, $112.6 million and $94.0 million, respectively, and our warrant portfolio had an aggregate book value of $3.5 million, $2.5 million and $0.7 million, respectively. During the six months ended June 30, 2010, we originated approximately $49.6 million of new loans in 9 portfolio companies. We originated approximately $50.0 million of new loans in 18 portfolio companies and $112.2 million of new loans in 38 portfolio companies for the year ended December 31, 2009 and the period from March 4, 2008 (inception) to December 31, 2008, respectively. We reduced the level of new loan originations in early 2009 in reaction to the significant disruption in the financial and credit markets. We had total loan principal repayments of $20.3 million for the six months ended June 30, 2010, $31.2 million for the year ended December 31, 2009 including five borrowers that prepaid their loan in an aggregate amount of $14.6 million and total loan principal repayments of $18.2 million for the period ended December 31, 2008 including five borrowers that prepaid their loan in an aggregate amount of $14.1 million. Our borrowers typically prepay our loans at a faster rate than is contractually required which is often due to a borrower’s completion of an initial public offering, being acquired or refinancing our loan with another lender.
 
As of June 30, 2010, December 31, 2009 and December 31, 2008, accrued interest receivable was $1.9 million, $1.5 million and $0.5 million, respectively. The increase in 2009 and the first quarter of 2010 was due to a larger loan portfolio relative to 2008 and represents one month of accrued interest income on each of our loans. No loans were on non-accrual status in any period.
 
During the period ended December 31, 2008, we paid total debt issuance costs of $3.4 million. As of June 30, 2010, December 31, 2009 and 2008, the amortized balance of debt issuance costs was $.8 million, $1.4 million and $2.5 million, respectively, and the amortization expense relating to debt issuance costs during the six months ended June 30, 2010, the year ended December 31, 2009 and the period ended December 31, 2008 was $.6 million, $1.1 million and $1.0 million, respectively. These costs relate to our Credit Facility which closed in March 2008 and are amortized into the consolidated statement of operations as interest expense over the term of our Credit Facility.
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The following table shows our portfolio by asset class as of June 30, 2010, December 31, 2009 and December 31, 2008:

 	 	June 30, 2010	 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	 	 	 	 	 	 	% of
	 	 	 	 	 	 	 	 	% of
	 	 	 	 	 	 	 	 	% of
	 	
 	 	# of
	 	 	Book
	 	 	Total
	 	 	# of
	 	 	Book
	 	 	Total
	 	 	# of
	 	 	Book
	 	 	Total
	 	
 	 	Investments	 	 	Value	 	 	Portfolio	 	 	Investments	 	 	Value	 	 	Portfolio	 	 	Investments	 	 	Value	 	 	Portfolio	 	
 	 	 	 	 	 	 	 	 	 	 	(in thousands)	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Secured term loans	 	 	34	 	 	$	138,968	 	 	 	95.6%	 	 	 	29	 	 	$	105,371	 	 	 	91.6%	 	 	 	21	 	 	$	78,497	 	 	 	82.9%	 	
Secured revolving loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2	 	 	 	3,682	 	 	 	3.2%	 	 	 	5	 	 	 	15,526	 	 	 	16.4%	 	
Equipment loans	 	 	1	 	 	 	2,933	 	 	 	2.0%	 	 	 	1	 	 	 	3,519	 	 	 	3.1%	 	 	 	—	 	 	 	—	 	 	 	0.0%	 	
Warrants to purchase stock	 	 	43	 	 	 	3,459	 	 	 	2.4%	 	 	 	37	 	 	 	2,458	 	 	 	2.1%	 	 	 	29	 	 	 	694	 	 	 	0.7%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	$	145,360	 	 	 	100.0%	 	 	 	 	 	 	$	115,030	 	 	 	100.0%	 	 	 	 	 	 	$	94,717	 	 	 	100.0%	 	

The largest loans may vary from year to year as new loans are recorded and repaid. Our five largest loans represented approximately 30%, 28% and 29% of total loans outstanding as of June 30, 2010, December 31, 2009 and December 31, 2008, respectively. No single loan represented more than 10% of our total loans as of June 30, 2010, December 31, 2009 or December 31, 2008.
 
The following table shows our loan portfolio by industry sector as of June 30, 2010, December 31, 2009 and December 31, 2008:

 	 	June 30, 2010	 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	Loans at
	 	 	Percentage
	 	 	Loans at
	 	 	Percentage
	 	 	Loans at
	 	 	Percentage of
	 	
 	 	Book
	 	 	of Total
	 	 	Book
	 	 	of Total
	 	 	Book
	 	 	Total
	 	
 	 	Value	 	 	Portfolio	 	 	Value	 	 	Portfolio	 	 	Value	 	 	Portfolio	 	
 	 	 	 	 	 	 	 	(in thousands)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Life Science	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Biotechnology	 	$	28,342	 	 	 	20.0%	 	 	$	22,050	 	 	 	19.6%	 	 	$	21,000	 	 	 	22.3	%	
Medical Device	 	 	17,766	 	 	 	12.5%	 	 	 	16,195	 	 	 	14.4%	 	 	 	18,523	 	 	 	19.7	%	
Technology	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumer-related Technologies	 	 	13,602	 	 	 	9.6%	 	 	 	15,371	 	 	 	13.7%	 	 	 	5,750	 	 	 	6.1	%	
Networking	 	 	9,989	 	 	 	7.0%	 	 	 	14,737	 	 	 	13.1%	 	 	 	4,856	 	 	 	5.2	%	
Software	 	 	15,039	 	 	 	10.6%	 	 	 	13,033	 	 	 	11.6%	 	 	 	15,801	 	 	 	16.8	%	
Data Storage	 	 	7,580	 	 	 	5.3%	 	 	 	9,075	 	 	 	8.1%	 	 	 	10,000	 	 	 	10.7	%	
Internet and Media	 	 	2,057	 	 	 	1.5%	 	 	 	2,500	 	 	 	2.2%	 	 	 	2,500	 	 	 	2.7	%	
Communications	 	 	8,435	 	 	 	5.9%	 	 	 	2,451	 	 	 	2.1%	 	 	 	3,093	 	 	 	3.3	%	
Semiconductors	 	 	—	 	 	 	—	 	 	 	867	 	 	 	0.7%	 	 	 	1,000	 	 	 	1.0	%	
Cleantech	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Energy Efficiency	 	 	19,000	 	 	 	13.4%	 	 	 	—	 	 	 	—%	 	 	 	—	 	 	 	—	%	
Healthcare Information and Services	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diagnostics	 	 	17,591	 	 	 	12.4%	 	 	 	16,293	 	 	 	14.5%	 	 	 	11,500	 	 	 	12.2	%	
Other Healthcare Related Services and Technologies	 	 	2,500	 	 	 	1.8%	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	141,901	 	 	 	100.0%	 	 	$	112,572	 	 	 	100.0%	 	 	$	94,023	 	 	 	100.0	%	

Portfolio Asset Quality
 
We use a credit rating system which rates each loan on a scale of 4 to 1, with 4 being the highest credit quality rating and 3 being the rating for a standard level of risk. A rating of 2 or 1 represents a deteriorating credit quality
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and increased risk. See “Business” for more detailed descriptions. The following table shows the classification of our loan portfolio by credit rating as of June 30, 2010, December 31, 2009 and December 31, 2008:

 	 	June 30, 2010	 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	Loans at
	 	 	Percentage
	 	 	Loans at
	 	 	Percentage
	 	 	Loans at
	 	 	Percentage
	 	
 	 	Book
	 	 	of Loan
	 	 	Book
	 	 	of Loan
	 	 	Book
	 	 	of Loan
	 	
 	 	Value	 	 	Portfolio	 	 	Value	 	 	Portfolio	 	 	Value	 	 	Portfolio	 	
 	 	 	 	 	 	 	 	(in thousands)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Credit Rating	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4	 	$	39,980	 	 	 	28.2%	 	 	$	19,303	 	 	 	17.2%	 	 	$	12,500	 	 	 	13.3%	 	
3	 	 	81,840	 	 	 	57.7%	 	 	 	64,992	 	 	 	57.7%	 	 	 	58,087	 	 	 	61.8%	 	
2	 	 	20,081	 	 	 	14.1%	 	 	 	28,277	 	 	 	25.1%	 	 	 	23,436	 	 	 	24.9%	 	
1	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	141,901	 	 	 	100.0%	 	 	$	112,572	 	 	 	100.0%	 	 	$	94,023	 	 	 	100.0%	 	

As of June 30, 2010, December 31, 2009 and December 31, 2008, our loan portfolio had a weighted average credit rating of 3.1, 2.9 and 2.9, respectively.
 
Results of Operations for the Three Months Ended June 30, 2010 and June 30, 2009
 
Interest and Other Loan Income

 	 	For the Three Months
	 	
 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	4,153	 	 	$	3,678	 	
Other income	 	 	98	 	 	 	57	 	
 	 	 	 	 	 	 	 	 	
Total interest and other loan income	 	$	4,251	 	 	$	3,735	 	
 	 	 	 	 	 	 	 	 	
Other interest income	 	$	19	 	 	$	11	 	

For the three months ended June 30, 2010, interest income on loans and total interest and other loan income increased over the three months ended June 30, 2009, primarily due to the increased average size of the loan portfolio to $123.6 million from $112.4 million. Other income was primarily comprised of loan prepayment fees collected from our portfolio companies. Other interest income was primarily income from interest earned on cash and cash equivalents held in interest bearing accounts.
 
For the three months ended June 30, 2010 and 2009, our dollar-weighted average annualized yield on average loans was approximately 13.8% and 13.3%, respectively. We compute the yield on average loans as (a) total interest and other loan income (as described below) divided by (b) average gross loans receivable. We used month end loan balances during the period to compute average loans receivable.
 
Interest and other loan income, consisting of interest income and fees on loans, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 20% and 30% of total loan interest and fee income for the three months ended June 30, 2010 and 2009, respectively.
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Expenses

 	 	For the Three Months
	 	
 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Management fee expense	 	$	593	 	 	$	559	 	
Interest expense	 	 	1,090	 	 	 	1,058	 	
Professional fees	 	 	32	 	 	 	98	 	
General and administrative	 	 	46	 	 	 	33	 	
 	 	 	 	 	 	 	 	 	
Total expenses	 	$	1,761	 	 	$	1,748	 	

Total expenses for each period consisted principally of management fees and interest expense and, to a lesser degree, professional fees and general and administrative expenses. For the three months ended June 30, 2010, interest expense, which includes the amortization of debt issuance costs, increased when compared to the three months ended June 30, 2009, which is primarily from a higher average outstanding debt balances on the Credit Facility. Management fees are paid monthly in arrears based on the outstanding loan investments. The increase in management fees for the three months ended June 30, 2010 when compared to the three months ended June 30, 2009, is primarily due to an increase in the average loan portfolio in 2010 from 2009 to $123.6 million from $112.4 million. The decrease in professional fees for the three months ended June 30, 2010 when compared to the three months ended June 30, 2009, is primarily due to the timing of audit services performed by our public accounting firm.
 
Net Realized and Unrealized (Loss) Gain on Warrants
 
The following is a summary of net realized (loss) gain and net unrealized (loss) gain on warrants for the three months ended June 30, 2010 and 2009:

 	 	For the Three Months
	 	
 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Net realized (loss) gain on warrants	 	$	(2	)	 	$	139	 	
Net unrealized (loss) gain on warrants	 	$	(364	)	 	$	4	 	
 
For the three months ended June 30, 2009, net realized gain on warrants resulted from the exercise of warrants in connection with a portfolio company merger transaction. For the three months ended June 30, 2010 and 2009, net unrealized (loss) gain on warrants is the difference between the net changes in warrant fair values from the prior determination date and the reversal of previously recorded unrealized gain or loss when gains or losses are realized.
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Results of Operations for the Six Months Ended June 30, 2010 and June 30, 2009
 
Interest and Other Loan Income

 	 	For the Six Months
	 	
 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	7,897	 	 	$	6,891	 	
Other income	 	 	137	 	 	 	67	 	
 	 	 	 	 	 	 	 	 	
Total interest and other loan income	 	$	8,034	 	 	$	6,958	 	
 	 	 	 	 	 	 	 	 	
Other interest income	 	$	28	 	 	$	44	 	

For the six months ended June 30, 2010, interest income on loans and total interest and other loan income increased over the six months ended June 30, 2009, primarily due to the increased average size of the loan portfolio to $117.6 million from $106.3 million. Other income was primarily comprised of loan prepayment fees collected from our portfolio companies. Other interest income was primarily income from interest earned on cash and cash equivalents held in interest bearing accounts.
 
For the six months ended June 30, 2010 and 2009, our dollar-weighted average annualized yield on average loans was approximately 13.7% and 13.1%, respectively. We compute the yield on average loans as (a) total interest and other loan income (as described below) divided by (b) average gross loans receivable. We used month end loan balances during the period to compute average loans receivable.
 
Interest and other loan income, consisting of interest income and fees on loans, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 18% and 31% of total loan interest and fee income for the six months ended June 30, 2010 and 2009, respectively.
 
Expenses

 	 	For the Six Months
	 	
 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Management fee expense	 	$	1,141	 	 	$	1,066	 	
Interest expense	 	 	2,093	 	 	 	2,079	 	
Professional fees	 	 	105	 	 	 	106	 	
General and administrative	 	 	102	 	 	 	79	 	
 	 	 	 	 	 	 	 	 	
Total expenses	 	$	3,441	 	 	$	3,330	 	

Total expenses for each period consisted principally of management fees and interest expense and, to a lesser degree, professional fees and general and administrative expenses. For the six months ended June 30, 2010, interest expense, which includes the amortization of debt issuance costs, increased when compared to the six months ended June 30, 2009, this is primarily from a higher average outstanding debt balances on the Credit Facility. Management fees are paid monthly in arrears based on the outstanding loan investments. The increase in management fees for the six months ended June 30, 2010 when compared to the six months ended June 30, 2009, is primarily due to an increase in the average loan portfolio in 2010 from 2009 to $117.6 million from $106.3 million.
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Net Realized and Unrealized (Loss) Gain on Warrants
 
The following is a summary of net realized (loss) gain and net unrealized (loss) gain on warrants for the six months ended June 30, 2010 and 2009:

 	 	For the Six Months
	
 	 	Ended June 30,	
 	 	2010	 	2009	
 	 	(in thousands)	
 	 	 	 	 	 	 	 	 	
Net realized (loss) gain on warrants	 	$	(2	)	 	$	139	 	
Net unrealized (loss) gain on warrants	 	$	(162	)	 	$	448	 	
 
For the six months ended June 30, 2009, net realized gain on warrants resulted from the exercise of warrants in connection with a portfolio company merger transaction. For the six months ended June 30, 2010 and 2009, net unrealized (loss) gain on warrants is the difference between the net changes in warrant fair values from the prior determination date and the reversal of previously recorded unrealized gain or loss when gains or losses are realized.
 
Results of Operations for the year ended December 31, 2009 and the period from March 4, 2008 (inception) to December 31, 2008
 
Compass Horizon, our predecessor for accounting purposes, was formed as a Delaware limited liability company in January 2008 and had limited operations through March 3, 2008. As a result, there is no period with which to compare our results of operations for the period from January 1, 2009 through March 3, 2009 or for the period from March 4, 2008 through December 31, 2008.
 
Interest and Other Loan Income

 	 	 	 	 	March 4
	 	
 	 	Year Ended
	 	 	(Inception) to
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	14,987	 	 	$	6,530	 	
Other income	 	 	272	 	 	 	132	 	
 	 	 	 	 	 	 	 	 	
Total interest and other loan income	 	$	15,259	 	 	$	6,662	 	
 	 	 	 	 	 	 	 	 	
Other interest income	 	$	67	 	 	$	359	 	

For the year ended December 31, 2009, interest income on loans and total interest and other loan income increased primarily due to (i) the increased average size of the loan portfolio from $63 million to $109 million and (ii) there being a full 12 months of income in 2009 compared to only 10 months in 2008 in light of when we commenced operations. Other income was primarily comprised of loan prepayment fees collected from our portfolio companies. Other interest income was primarily income from interest earned on cash and cash equivalents held in interest bearing accounts. During 2009, we held lower average cash balances than 2008, and the interest bearing accounts had lower interest rates on which to earn income on such balances.
 
For the year ended December 31, 2009 and the ten month period ended December 31, 2008, our dollar-weighted average annualized yield on average loans was approximately 13.9% and 12.7%, respectively. We compute the yield on average loans as (i) total interest and other loan income (as described below) divided by (b) average gross loans receivable. We used month end loan balances during the period to compute average loans receivable. Since we commenced operations in March 2008, the results for the period ended December 31, 2008 were annualized.
 
Interest and other loan income, consisting of interest income and fees on loans, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 23% and 21% of
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total loan interest and fee income for the year ended December 31, 2009 and the period from March 4, 2008 (inception) to December 31, 2008, respectively.
 
Expenses

 	 	 	 	 	March 4
	 	
 	 	Year Ended
	 	 	(Inception) to
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Management fee expense	 	$	2,202	 	 	$	1,073	 	
Interest expense	 	 	4,245	 	 	 	2,748	 	
Professional fees	 	 	132	 	 	 	61	 	
General and administrative	 	 	190	 	 	 	150	 	
 	 	 	 	 	 	 	 	 	
Total expenses	 	$	6,769	 	 	$	4,032	 	

Total expenses for each period consisted principally of management fees and interest expense and, to a lesser degree, professional fees and general and administrative expenses. Interest expense, which includes the amortization of debt issuance costs, increased in 2009 from 2008 primarily from higher average outstanding debt balances on the Credit Facility, partially offset by lower rates charged on the Credit Facility due to lower level of the Credit Facility’s index rate, one-month LIBOR. Management fees are paid monthly in arrears based on the outstanding loan investments. The increase in management fees paid was primarily due to an increase in the average loan portfolio in 2009 from 2008 of $63 million to $109 million and a full 12 months of expense in 2009 compared to only 10 months in 2008. Professional fees and general and administrative expenses include legal, consulting and accounting fees, insurance premiums, and miscellaneous other expenses, which increased because of the longer period in 2009.
 
Net Realized Gains and Net Unrealized Gain (Loss) on Warrants
 
The following is a summary of net realized gains and net unrealized gain (loss) on warrants for the year ended December 31, 2009 and for the period ended December 31, 2008:

 	 	 	 	 	March 4
	 	
 	 	Year Ended
	 	 	(Inception) to
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	
Net realized gains on warrants	 	$	138	 	 	$	22	 	
Net unrealized gain (loss) on warrants	 	$	892	 	 	$	(73	)	
 
For the year ended December 31, 2009 and the period ended December 31, 2008, net realized gains on warrants resulted from the exercise of warrants in each period in connection with portfolio company merger transactions. Net unrealized gain (loss) on warrants is the difference between the net change in warrant fair values from the prior determination date and the reversal of previously recorded unrealized gain or loss when gains or losses are realized.
 
Liquidity and Capital Resources
 
To date, our primary sources of capital have been from our Credit Facility with WestLB AG, New York Branch, as more fully described in “Borrowings” below and from the private placement for $50 million of equity capital we completed on March 4, 2008.
 
At June 30, 2010 and December 31, 2009, we had cash and cash equivalents of approximately $12.4 million and $9.9 million, respectively. As of June 30, 2010 and December 31, 2009, we had available borrowing capacity of
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approximately $58.7 million ($33.7 million assuming a Credit Facility size of $125 million, the size of the Credit Facility upon the completion of this offering) and $85.8 million, respectively, under the Credit Facility, subject to existing terms and advance rates. We primarily invest available cash in interest bearing money market accounts.
 
For the six months ended June 30, 2010 and 2009, net cash provided by operating activities totaled approximately $4.7 million and $3.7 million, respectively. The increase in 2010 was primarily due to higher income from operations in 2010. For the year ended December 31, 2009 and for the period ended December 31, 2008, net cash provided by operating activities totaled approximately $8.0 million and $4.1 million, respectively. The increase in 2009 was primarily due to higher income from operations in 2009.
 
For the six months ended June 30, 2010 and 2009, net cash used in investing activities totaled approximately $29.3 million and $24.2 million, respectively. The increase is primarily due to a higher level of loan funding compared to 2009. Net cash used in investing activities for the year ended December 31, 2009 and for the period ended December 31, 2008, totaled approximately $18.6 million and $94.0 million, respectively. The reduction in cash used in investing activities in 2009 was largely due to the reduced level of new loans funded in 2009 as well as a higher level of scheduled loan repayments and unscheduled loan prepayments in 2009 as the portfolio continued to grow and mature.
 
For the six months ended June 30, 2010 and 2009, net cash provided by financing activities totaled $27.1 million and $7.3 million, respectively. This increase was due to a higher level of net new borrowings under the Credit Facility to fund new loan investments and to maximize the full availability under the Credit Facility. Net cash provided by financing activities totaled $.5 million and $109.9 million for the year ended December 31, 2009 and for the period ended December 31, 2008, respectively. Higher cash flows in 2008 were primarily due to the initial equity capital contribution to us as well as net new borrowings under the Credit Facility to fund new loan investments. Lower cash provided by financing activities in 2009 reflects the use of loan repayments from existing loans to fund new loans rather than drawing additional amounts under the Credit Facility. Because we believe we had sufficient capital in 2009, we did not raise additional capital during the year.
 
We intend to generate additional cash primarily from additional borrowings under the current Credit Facility as well as from cash flows from operations. Our primary use of available funds will be investments in portfolio companies and cash distributions to holders of our common stock. After we have used our current capital resources, including the net proceeds from this offering, we expect to opportunistically raise additional capital as needed and subject to market conditions to support our future growth through future equity offerings, issuances of senior securities and/or future borrowings, to the extent permitted by the 1940 Act. To the extent we determine to raise additional equity through an offering of our common stock at a price below net asset value, existing investors will experience dilution.
 
In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders all or substantially all of our income except for certain net capital gains. In addition, as a business development company, we generally will be required to meet a coverage ratio of 200%. This requirement will limit the amount that we may borrow. Upon the receipt of the net proceeds from this offering, we will be in compliance with the asset coverage ratio under the 1940 Act.
 
If we receive approval to license an SBIC, we will have the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the Small Business Investment Act and the SBA rules applicable to SBICs, an SBIC can have outstanding at any time debentures guaranteed by the SBA generally in an amount up to twice its regulatory capital, which generally is the amount raised from private investors. The maximum statutory limit on the dollar amount of outstanding debentures guaranteed by the SBA issued by a single SBIC or group of SBICs under common control as of December 31, 2009, was $150 million (which amount is subject to increase on an annual basis based on cost of living index increases).
 
Borrowings
 
We, through our wholly owned subsidiary, Credit I, entered into a revolving credit facility (the “Credit Facility”) with WestLB AG, New York Branch as Lender (“WestLB”) effective March 4, 2008. Per this agreement, base rate borrowings bear interest at one-month LIBOR (0.35%, 0.23% and 0.44% as of June 30, 2010,
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December 31, 2009 and December 31, 2008, respectively) plus 2.50%. On June 25, 2010, we received consent from WestLB to allow for the change of control that will occur upon the consummation of the Share Exchange. The facility size will be $125 million upon the completion of this offering. In general, all other terms and conditions of the Credit Facility will remain the same upon the completion of the offering.
 
We may request advances under the Credit Facility (the “Revolving Period”) through March 4, 2011, unless the Revolving Period is extended upon Credit I’s request and upon mutual agreement of WestLB and Credit I. After the Revolving Period, we may not request new advances and we must repay the outstanding advances under the Credit Facility as of such date at such times and in such amounts as are necessary to maintain compliance with the terms and conditions of the Credit Facility, particularly the condition that the principal balance of the Credit Facility does not exceed seventy-five percent (75%) of the aggregate principal balance of our eligible loans to our portfolio companies. All outstanding advances under the Credit Facility are due and payable on March 4, 2015 (“Maturity Date”), unless such date is extended upon Credit I’s request and upon mutual agreement of WestLB and Credit I.
 
The Credit Facility is collateralized by loans held by Credit I and permits an advance rate of up to 75% of eligible loans. The Credit Facility contains certain customary affirmative and negative covenants, including covenants that restrict certain of our subsidiaries’ ability to make loans to, or investments in, third parties (other than technology loans and warrants or other equity participation rights), pay dividends and distributions, incur additional indebtedness and engage in mergers or consolidations. The Credit Facility also restricts certain of our subsidiaries’ and our Advisor’s ability to create liens on the collateral securing the Credit Facility, permit additional negative pledges on such collateral and change the business currently conducted by them. The Credit Facility contains events of default, including upon the occurrence of a change of control, and contains certain financial covenants that among other things, require Compass Horizon to maintain a minimum net worth, for fiscal year 2010 and after, equal to the minimum net worth amount for 2009 plus 50% of Compass Horizon’s cumulative positive net income for fiscal year 2010 on and after December 31, 2010, and require our Advisor to maintain a minimum net worth, for fiscal year 2010 and after, equal to the greater of (i) $1 million or (ii) the 2009 minimum net worth amount plus 50% of the cumulative positive net income for each fiscal year. The Credit Facility also includes borrower concentration limits which include limitations on the amount of loans to companies in particular industries sectors and also restrict certain terms of the loans.
 
Interest Rate Swaps and Hedging Activities
 
In 2008, we entered into two interest rate swap agreements, which we collectively refer to as the “Swaps,” with WestLB, fixing the rate of $10 million at 3.58% and $15 million at 3.2% on the first advances of a like amount of variable rate Credit Facility borrowings. The interest rate swaps expire in October 2011 and October 2010, respectively. The Swaps are designated as cash flow hedges and are anticipated to be highly effective. These Swaps are derivatives and were designated as hedging instruments at the initiation of the Swaps, and we have applied cash flow hedge accounting.
 
At June 30, 2010 and December 31, 2009, the Swaps have been reflected at fair value as a liability on the consolidated balance sheet and the corresponding unrealized loss on the Swaps is reflected in “accumulated other comprehensive loss,” in members’ capital, totaling $0.5 million and $0.8 million, respectively. No ineffectiveness on the Swaps was recognized during the six month period ended June 30, 2010 or the year ended December 31, 2009. During the six months ended June 30, 2010 and year ended December 31, 2009, $0.4 million and $0.8 million, respectively, was reclassified from accumulated other comprehensive loss into interest expense, and at June 30, 2010, $0.4 million is expected to be reclassified in the next twelve months.
 
Off-Balance Sheet Arrangements
 
In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. As of June 30, 2010, we had unfunded commitments of approximately $9.3 million. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on balance sheet financial instruments that we hold. Since these commitments may expire
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without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We intend to use primarily cash flows from operations and our Credit Facility to fund these commitments. However, there can be no assurance that we will have sufficient capital available to fund these commitments as they come due.
 
Contractual Obligations
 
In addition to the Credit Facility, we have certain commitments pursuant to our Investment Management Agreement entered into with Horizon Technology Finance Management LLC, our Advisor. We have agreed to pay a fee for investment advisory and management services consisting of two components — a base management fee and an incentive fee. Payments under the Investment Management Agreement are equal to (1) a base management fee equal to a percentage of the value of our average gross assets and (2) a two-part incentive fee. See “Investment Management and Administration Agreements.” We have also entered into a contract with our Advisor to serve as our administrator. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of our Advisor’s overhead in performing its obligation under the agreement, including rent, fees, and other expenses inclusive of our allocable portion of the compensation of our chief financial officer and any administrative staff. See “Administration Agreement.”
 
Quantitative and Qualitative Disclosures about Market Risk
 
We are subject to financial market risks, including changes in interest rates. During the periods covered by our financial statements, the interest rates on the loans within our portfolio were all at fixed rates, or floating rates with a floor, and we expect that our loans in the future will also have primarily fixed interest rates. The initial commitments to lend to our portfolio companies are usually based on a floating LIBOR index and typically have interest rates that are fixed at the time of the loan funding and remain fixed for the term of the loan.
 
Our Credit Facility has a floating interest rate provision based on a LIBOR index which resets daily, and we expect that, other than any SBIC debenture program debt, any other credit facilities into which we enter in the future may have floating interest rate provisions. We have used hedging instruments in the past to protect us against interest rate fluctuations and we may use them in the future. Such instruments may include swaps, futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.
 
Because we currently fund, and will continue to fund, our investments with borrowings, our net income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by floating rate assets in our investment portfolio.
 
Income Taxes
 
For the periods presented our predecessor was a limited liability company and, as a result, all items of income and expense were passed through to, and were generally reportable on, the tax returns of the respective members of the limited liability company. Therefore, no federal or state income tax provision has been recorded.
 
Recent Accounting Pronouncements
 
On July 1, 2009, the Accounting Standards Codification (“ASC”) became the Financial Accounting Standards Board’s (“FASB”) single source of authoritative U.S. accounting and reporting standards applicable to all public and non-public non-governmental entities, superseding existing authoritative principles and related literature. The adoption of the ASC changed the applicable citations and naming conventions used when referencing generally accepted accounting principles in our financial statements.
 
The FASB issued new guidance on accounting for uncertainty in income taxes. We adopted this new guidance for the year ended December 31, 2009. Management evaluated all tax positions and concluded that there are no
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uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance.
 
In March 2008, the FASB issued guidance related to disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance and cash flows. We adopted this guidance in 2009.
 
In April 2009, the FASB issued guidance which addressed concerns that fair value measurements emphasized the use of an observable market transaction even when that transaction may not have been orderly or the market for that transaction may not have been active. This guidance relates to the following: (a) determining when the volume and level of activity for the asset or liability has significantly decreased; (b) identifying circumstances in which a transaction is not orderly; and (c) understanding the fair value measurement implications of both (a) and (b). We adopted this new guidance in 2009, and the adoption had no impact on our financial statements.
 
In February 2010, the FASB issued guidance which amends the existing guidance related to fair value measurements and disclosures. The amendments will require the following new fair value disclosures:

 	• 	Separate disclosure of the significant transfers in and out of Level 1 and Level 2 fair value measurements, and a description of the reasons for the transfers.	
 	 	 	
 	• 	In the roll forward of activity for Level 3 fair value measurements (significant unobservable inputs), purchases, sales, issuances, and settlements should be presented separately (on a gross basis rather than as one net number).	
 
In addition, the amendments clarify existing disclosure requirements, as follows:

 	• 	Fair value measurements and disclosures should be presented for each class of assets and liabilities within a line item in the balance sheet.	
 	 	 	
 	• 	Reporting entities should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3.	
 
The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures included in the roll forward of activity for Level 3 fair value measurements, for which the effective date is for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the applicable provisions of this new guidance for the three months ended March 31, 2010.
 
In June 2009, the FASB issued guidance which modifies certain guidance relating to transfers and servicing of financial assets. This guidance eliminates the concept of qualifying special purpose entities, provides guidance as to when a portion of a transferred financial asset can be evaluated for sale accounting, provides additional guidance with regard to accounting for transfers of financial assets and requires additional disclosures. This guidance is effective for us as of January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The adoption of this guidance did not have an impact on our financial statements.
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BUSINESS
 
General
 
We are an externally-managed, non-diversified closed-end management investment company that intends to file an election to be regulated as a business development company under the 1940 Act. In addition, we intend to elect to be treated, and intend to qualify, as a RIC, under Subchapter M of the Code, commencing with our taxable year ending December 31, 2010. We were formed to continue and expand the business of Compass Horizon which was formed in January 2008 and commenced operations in March 2008 and which will become our wholly owned subsidiary in connection with this offering. Our Advisor manages our day-to-day operations and also provides all administrative services necessary for us to operate. We invest in development-stage companies in the technology, life science, healthcare information and services, and cleantech industries, which we refer to as our “Target Industries.” Our investment objective is to generate current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We make secured loans, which we refer to as “Technology Loans,” to development-stage companies backed by established venture capital and private equity firms in our Target Industries, which we refer to as “Technology Lending.” To a limited extent, we also selectively lend to publicly traded companies in our Target Industries.
 
We lend to private companies following or in connection with their receipt of a round of venture capital and private equity financing, primarily providing secured working capital loans, secured revolving loans and secured equipment loans that are secured by all or a portion of the tangible and intangible assets of the applicable portfolio company. We will seek to invest, under normal circumstances, most of the value of our total assets (including the amount of any borrowings for investment purposes) in our Target Industries.
 
Our existing loan portfolio will continue to generate revenue for us. We believe our existing investment portfolio has performed well since its inception notwithstanding the economic downturn starting in 2008 and continuing through 2009. With the improvement in the broader economy in 2010, we continue to experience favorable portfolio quality and outcomes with no realized losses (charge-offs) in our loan portfolio since we commenced operations in March 2008. Our existing portfolio of investments and loan commitments provide the following benefits:

 	• 	Interest income from the portfolio will provide immediate income and cash flow allowing for potential near term dividends to our stockholders;	
 	 	 	
 	• 	Capital gains from warrants to purchase either common stock or preferred stock received from our existing investments are expected to be realized sooner than if we were beginning our initial investment operations without an existing portfolio of earning assets; and	
 	 	 	
 	• 	Warrants to purchase either common stock or preferred stock issued to us through the economic downturn have exercise prices at relatively lower valuations due to the depressed equity and debt markets in 2008 and 2009.	
 
Our Strategy
 
Our investment objective is to maximize our investment portfolio’s total return by generating current income from the loans we make and capital appreciation from the warrants we receive when making such loans. We believe our Advisor has demonstrated that its expertise in debt product development, transaction sourcing, its knowledge of our Target Industries, and its disciplined underwriting process create value for our investors. We believe that this expertise results in returns that exceed those typically available from more traditional commercial finance products (such as equipment leasing or middle market lending) while mitigating the risks typically associated with investments in development-stage technology companies.
 
To further implement our business strategy, our Advisor will continue to employ the following core strategies:

 	• 	Structured Investments in the Venture Capital and Private Equity Markets.  We make loans to development-stage companies within our Target Industries typically in the form of secured amortizing loans. The secured amortizing debt structure provides a lower risk strategy, as compared to equity investments, to participate in the emerging technology markets, because the debt structures we typically utilize provide collateral against the downside risk of loss, provide return of capital in a much shorter timeframe through	

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 	 	current pay interest and amortization of loan principal and have a senior position in the capital structure to equity in the case of insolvency, wind down or bankruptcy. Unlike venture capital and private equity-backed investments, our investment returns and return of our capital do not require equity investment exits such as mergers and acquisitions or initial public offerings. Instead, we receive returns on our loans primarily through regularly scheduled payments of principal and interest and, if necessary, liquidation of the collateral supporting the loan. Only the potential gains from warrants are dependent upon exits.	

 	• 	“Enterprise Value” Lending.  We and our Advisor take an enterprise value approach to the loan structuring and underwriting process. “Enterprise value” is the value that a portfolio company’s most recent investors place on the portfolio company or “enterprise.” The value is determined by multiplying (x) the number of shares of common stock of the portfolio company outstanding on the date of calculation, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), by (y) the price per share paid by the most recent purchasers of equity securities of the portfolio company. We secure a senior or subordinated lien position against the enterprise value of a portfolio company and generally our exposure is less than 25% of the enterprise value and we obtain pricing enhancements in the form of warrants and other “success-based” fees that build long-term asset appreciation in our portfolio. These methods reduce the downside risk of Technology Lending. In instances when we do not obtain a lien on a portfolio company’s intellectual property, we obtain a covenant that such portfolio company will not grant a lien on such intellectual property to anyone else, thus ensuring that we have the right to share in the value of the portfolio company’s intellectual property and enterprise value in a downside scenario. “Enterprise value” lending requires an in-depth understanding of the companies and markets served. We believe that this in-depth understanding of how venture capital and private equity-backed companies in our Target Industries grow in value, finance that growth over time, and various business cycles can be carefully analyzed by Technology Lenders who have substantial experience, relationships and knowledge within the markets they serve. We believe the experience that our Advisor possesses gives us enhanced capabilities in making these qualitative “enterprise value” evaluations, which we believe can produce a high quality Technology Loan portfolio with enhanced returns for our stockholders.	
 	 	 	
 	• 	Creative Products with Attractive Risk-Adjusted Pricing.  Each of our existing and prospective portfolio companies has its own unique funding needs for the capital provided from the proceeds of our Technology Loans. These funding needs include, but are not limited to, funds for additional development runways, funds to hire or retain sales staff, or funds to invest in research and development in order to reach important technical milestones in advance of raising additional equity. Our loans include current pay interest, commitment fees, pre-payment fees and non-utilization fees. We believe we have developed pricing tools, structuring techniques and valuation metrics that satisfy our portfolio companies’ requirements while mitigating risk and maximizing returns on our investments.	
 	 	 	
 	• 	Opportunity for Enhanced Returns.  To enhance our loan portfolio returns, in addition to interest and fees, we obtain warrants to purchase the equity of our portfolio companies, as additional consideration for making loans. The warrants we obtain generally include a “cashless exercise” provision to allow us to exercise these rights without requiring us to make any additional cash investment. Obtaining warrants in our portfolio companies has allowed us to participate in the equity appreciation of our portfolio companies which we expect will enable us to generate higher returns for our investors.	

 	• 	Direct Origination.  We originate transactions directly with technology, life science, healthcare information and services, and cleantech companies. Since it commenced operations in 2004, our Advisor has directly originated more than 115 transactions resulting in over $700 million of Technology Loans. These transactions were referred to our Advisor from a number of sources, including referrals from, or direct solicitation of, venture capital and private equity firms, portfolio company management teams, legal firms, accounting firms, investment banks and other lenders that represent companies within our Target Industries. Our Advisor has been the sole or lead originator in substantially all transactions in which the funds it managed have invested.	

 	• 	Disciplined and Balanced Underwriting and Portfolio Management.  We use a disciplined underwriting process that includes obtaining information validation from multiple sources, extensive knowledge of our	

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 	 	Target Industries, comparable industry valuation metrics, and sophisticated financial analysis related to development-stage companies. Our Advisor’s due diligence on investment prospects includes obtaining and evaluating information on the prospective portfolio company’s technology, market opportunity, management team, fund raising history, investor support, valuation considerations, financial condition and projections. We seek to balance our investment portfolio to reduce the risk of down market cycles associated with any particular industry or sector, development-stage or geographic area. Our Advisor employs a “hands on” approach to portfolio management requiring private portfolio companies to provide monthly financial information and to participate in regular updates on performance and future plans.	

 	• 	Use of Leverage; SBA Debenture Program.  We believe our existing credit facility provides us with a substantial amount of capital for deployment into new investment opportunities. Since its inception, Compass Horizon has employed leverage to increase its return on equity through the Credit Facility. The Credit Facility, pursuant to which we expect to be able to borrow up to $125 million upon completion of this offering, matures on March 4, 2015. The Credit Facility will begin to amortize on March 4, 2011. In addition, on July 14, 2009, our Advisor received a letter, which we refer to as the “Move Forward Letter,” from the Investment Division of the SBA that invited our Advisor to continue moving forward with the licensing of a small business investment company, or “SBIC.” Although our application to license this entity as a small business investment company with the SBA is subject to SBA approval, we remain cautiously optimistic that our Advisor will complete the licensing process. To the extent that our Advisor receives an SBIC license, we expect to form an SBIC subsidiary which will issue SBA-guaranteed debentures at long-term fixed rates, subject to the required capitalization of the SBIC subsidiary. Under the regulations applicable to SBICs, an SBIC generally may have outstanding debentures guaranteed by the SBA in an aggregate amount of up to twice its regulatory capital. Regulatory capital generally equates to the amount of an SBIC’s equity capital. The SBIC regulations currently limit the amount that the SBIC subsidiary would be permitted to borrow to a maximum of $150 million. This means that the SBIC subsidiary could access the full $150 million maximum available if it were to have $75 million in regulatory capital. However, we would not be required to capitalize our SBIC subsidiary with $75 million and may determine to capitalize it with a lesser amount. In addition, if we are able to obtain financing under the SBIC program, the SBIC subsidiary will be subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. In connection with the filing of the SBA license application, we will be applying for exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiary guaranteed by the SBA from the consolidated asset coverage ratio, and, if obtained, will enable us to fund more investments with debt capital. However, there can be no assurance that we will be granted an SBIC license or that if granted it will be granted in a timely manner or that we will receive the exemptive relief from the SEC. Based upon an analysis of our Advisor’s loan originations since inception, as further evidenced by the Move Forward Letter, Technology Lending is an appropriate use of the SBA debenture program.	
 	 	 	
 	• 	Customized Loan Documentation Process.  Our Advisor employs an internally managed documentation process that assures that each loan transaction is documented using our “enterprise value” loan documents specifically tailored to each transaction. Our Advisor uses experienced in-house senior legal counsel to oversee the documentation and negotiation of each of our transactions.	
 	 	 	
 	• 	Active Portfolio Management.  Because many of our portfolio companies are privately held, development-stage companies in our Target Industries, our Advisor employs a “hands on” approach to its portfolio management processes and procedures. Our Advisor requires the private portfolio companies to provide monthly financial information, and our Advisor participates in quarterly discussions with the management and investors of our portfolio companies. Our Advisor prepares monthly management reporting and internally rates each portfolio company.	
 	 	 	
 	• 	Portfolio Composition.  Monitoring the composition of the portfolio is an important component of the overall growth and portfolio management strategy. Our Advisor monitors the portfolio regularly to avoid undue focus in any sub-industry, stage of development or geographic area. By regularly monitoring the portfolio for these factors we attempt to reduce the risk of down market cycles associated with any particular industry, development-stage or geographic area.	

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Market Opportunity
 
Our Target Industries.  We intend to focus our investments primarily in four key industries of the emerging technology market: technology, life science, healthcare information and services, and cleantech. The technology industry sectors we intend to focus on include communications, networking, wireless communications, data storage, software, cloud computing, semiconductor, internet and media, and consumer-related technologies. Life science sectors we intend to focus on include biotechnology, drug delivery, bioinformatics, and medical devices. Healthcare information and services sectors we intend to focus on include diagnostics, medical record services and software, and other healthcare related services and technologies that improve efficiency and quality of administered healthcare. Cleantech sectors we intend to focus on include alternative energy, water purification, energy efficiency, green building materials, and waste recycling.
 
Technology Lending.  We believe that Technology Lending has the potential to achieve enhanced returns that are attractive notwithstanding the increased level of risk associated with lending to development-stage companies. Potential benefits include:

 	• 	Higher Interest Rates.  Technology Loans typically bear interest at rates that exceed the rates that would be available to portfolio companies if they could borrow in traditional commercial financing transactions. We believe these rates provide a risk-adjusted return to lenders compared with other types of debt investing and provide a significantly less expensive alternative to equity financing for development-stage companies.	
 	 	 	
 	• 	Loan Support Provided by Cash Proceeds from Equity Capital Provided by Venture Capital and Private Equity Firms.   In many cases, a Technology Lender makes a Technology Loan to a portfolio company in conjunction with, or immediately after, a substantial venture capital or private equity investment in the portfolio company. This equity capital investment supports the loan by initially providing a source of cash to fund the portfolio company’s debt service obligations. In addition, because the loan ranks senior in priority of payment to the equity capital investment, the portfolio company must repay that debt before the equity capital investors realize a return on their investment. If the portfolio company subsequently becomes distressed, its venture capital and private equity investors will likely have an incentive to assist it in avoiding a payment default, which could lead to foreclosure on the secured assets. We believe that the support of venture capital and private equity investors increases the likelihood that a Technology Loan will be repaid.	
 	 	 	
 	• 	Relatively Rapid Amortization of Loans.  Technology Loans typically require that interest payments begin within one month of closing, and principal payments begin within twelve months of closing, thereby returning capital to the lender and reducing the capital at risk with respect to the investment. Because Technology Loans are typically made at the time of, or soon after, a portfolio company completes a significant venture capital or private equity financing, the portfolio company usually has sufficient funds to begin making scheduled principal and interest payments even if it is not then generating revenue and/or positive cash flow. If a portfolio company is able to increase its “enterprise value” during the term of the loan (which is typically between 24 and 48 months), the lender may also benefit from a reduced loan-to-value ratio, which reduces the risk of the loan.	
 	 	 	
 	• 	Senior Ranking to Equity and Collateralization.  A Technology Loan is typically secured by some or all of the portfolio company’s assets, thus making the loan senior in priority to the equity invested in the portfolio company. In many cases, if a portfolio company defaults on its loan, the value of this collateral will provide the lender with an opportunity to recover all or a portion of its investment. Because holders of equity interests in a portfolio company will generally lose their investments before the Technology Lender experiences losses, we believe that the likelihood of losing all of our invested capital in a Technology Loan is lower than would be the case with an equity investment.	
 	 	 	
 	• 	Potential Equity Appreciation Through Warrants.  Technology Lenders are typically granted warrants in portfolio companies as additional consideration for making Technology Loans. The warrants permit the Technology Lender to purchase equity securities of the portfolio companies at the same price paid by the portfolio company’s investors for such preferred stock in the most recent or next equity round of the portfolio company’s financing. Historically, warrants granted to Technology Lenders have generally had a term of ten years and been in dollar amounts equal to between 5% and 20% of the principal loan amount. Warrants	

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 	 	provide Technology Lenders with an opportunity to participate in the potential growth in value of the portfolio company, thereby increasing the potential return on investment.	
 
We believe that Technology Lending also provides an attractive financing source for portfolio companies, their management teams and their equity capital investors, because of the following:

 	• 	Technology Loans are Typically Less Dilutive than Venture Capital and Private Equity Financing.   Technology Loans allow a company to access the cash necessary to implement its business plan without diluting the existing investors in the company. Typically, the warrants or other equity securities issued as part of a Technology Lending transaction result in only minimal dilution to existing investors as compared to the potential dilution of a new equity round of financing.	
 	 	 	
 	• 	Technology Loans Extend the Time Period During Which a Portfolio Company Can Operate Before Seeking Additional Equity Financing.   By using a Technology Loan, development-stage companies can postpone the need for their next round of equity financing, thereby extending their cash available to fund operations. This delay can provide portfolio companies with additional time to improve technology, achieve development milestones and, potentially, increase the company’s valuation before seeking more equity investments.	
 	 	 	
 	• 	Technology Loans Allow Portfolio Companies to Better Match Cash Sources with Uses.   Debt is often used to fund infrastructure costs, including office space and laboratory equipment. The use of debt to fund infrastructure costs allows a portfolio company to spread these costs over time, thereby conserving cash at a stage when its revenues may not be sufficient to cover expenses. Similarly, working capital financing may be used to fund selling and administrative expenses ahead of anticipated corresponding revenue. In both instances, equity capital is preserved for research and development expenses or future expansion.	
 
Market Size.  Our Advisor estimates, based upon our 16 years of experience making Technology Loans to companies in our Target Industries, that during such period the ratio of the aggregate principal amount of debt investments made to the aggregate capital invested by venture capital investors has been approximately 10% to 20%. According to Dow Jones VentureSource, $21.4 billion of venture capital equity was invested in companies in our Target Industries during 2009. Accordingly, based on our Advisor’s past experience, we would estimate that the size of the Technology Loan market for 2009 was in the range of approximately $2.1 billion to $4.2 billion. We believe that the market for Technology Loans should grow over the next several years based upon several factors. We believe the level of venture capital investment for 2009 is at a cyclical low, as shown by the $32.2 billion and $31.0 billion of venture capital investment for 2007 and 2008, respectively, as reported by DowJones VentureSource. We believe that the comparable period of 2009 in the venture capital investment cycle is 2003, because 2003 represented the last period of decline in the amount of venture capital investment following the burst of the technology bubble in 2000. Venture capital investment steadily increased from $22.9 billion in 2004 to $32.2 billion in 2007 as, reported by Dow Jones VentureSource, representing a compounded annual growth rate of 8.9% for that period. Our belief that 2009 was a low point in the venture capital investment cycle is further supported by the fact that the amount of venture capital investment in the last three quarters of 2009 increased from a 13 year low of $4.2 billion in the first quarter of 2009 to $5.6 billion in the second quarter of 2009, $5.4 billion in the third quarter of 2009, and $6.9 billion in the fourth quarter of 2009. Dow Jones VentureSource further reported venture capital investments of $6.9 billion in the fourth quarter of 2009 compared to $6.3 billion in the fourth quarter of 2008, representing a 10% increase period to period. That positive trend continued into 2010 with venture capital investments of $4.7 billion in the first quarter of 2010 compared to $4.2 billion in the first quarter of 2009, representing a 12% increase period to period. The potential for future growth in the market for Technology Loans is also supported by the fact that, according to Dow Jones VentureSource, there was $17 billion of liquidity events related to M&A and IPO activity for companies in our Target Industries in 2009, of which $7.3 billion was generated in the fourth quarter, representing 44% of the total activity for the year. This not only returns capital to investors which can be reinvested in venture capital investments, but also makes venture capital a more attractive investment class to investors, thus attracting additional capital. In addition, nearer term exits for venture capital investors, reinforces Technology Loans as a cheaper financing alternative than venture capital for companies in our Target Industries and their investors, thus driving up demand for Technology Loans.
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Portfolio Company Valuations.  According to Dow Jones VentureSource, from 2007 through 2009 valuations of existing companies in our Target Industries significantly decreased, as they did for most asset classes. We believe this decrease was due to general macroeconomic conditions, including lower demand for products and services, lack of availability of capital and investors’ decreased risk tolerance. We believe the decrease in valuations in our Target Industries caused by macroeconomic factors may present a cyclical opportunity to participate in warrant gains in excess of those which are typically experienced by Technology Lenders. Our future portfolio companies may not only increase in value due to their successful technology development and/or revenue growth, but as macroeconomic conditions improve, valuations may also increase due to the general increase in demand for goods and services, the greater availability of capital and an increase in investor risk tolerance. An example of the positive and negative macroeconomic impact on valuations last occurred in the years between 2001 and 2005. Following the macroeconomic impact of the technology downturn of 2001 and the events of “9/11”, according to Dow Jones VentureSource, median valuations for venture capital backed technology-related financing fell from $25 million at December 2000 to $10 million at January 2003, but by December 2005, median valuations for venture capital backed technology related financings had risen to $15 million.
 
Competitive Strengths
 
We believe that we, together with our Advisor, possess significant competitive strengths, including:
 
Consistently execute commitments and close transactions.  Our Advisor and its senior management and investment professionals have an extensive track record of originating, underwriting and closing Technology Loans. Our Advisor has directly originated, underwritten, and managed more than 115 Technology Loans with an aggregate original principal amount of $700 million since it commenced operations in 2004 to the present. In our experience, prospective portfolio companies prefer lenders that have demonstrated their ability to deliver on their commitments. Our Advisor’s ability to deliver on its commitments has resulted in satisfied portfolio companies, management teams and venture capital and private equity investors and created an extensive base of transaction sources and references for our Advisor.
 
Robust direct origination capabilities.  Our Advisor’s managing directors each have significant experience originating Technology Loans in our Target Industries. This experience has given each managing director a deep knowledge of our Target Industries and, assisted by their long standing working relationships with our Advisor’s senior management and our Advisor’s brand name recognition in our market, has resulted in a steady flow of high quality investment opportunities that are consistent with the strategic vision and expectations of our Advisor’s senior management. The combination of the managing directors’ experience and their close working relationship with our Advisor’s senior management, together with the extensive base of transaction sources and references generated by our Advisor’s active participation in the Technology Lending market, has created an efficient marketing and sales organization.
 
Access to capital.  Since it commenced operations in 2004, our Advisor has always had access to capital which allowed it to consistently offer Technology Loans to companies in our Target Industries, including offering loans through Compass Horizon during the difficult economic markets of 2008 and 2009. Our Advisor’s demonstrated access to capital, including through the Credit Facility, has created awareness among companies in our Target Industries of our Advisor’s consistent ability to make Technology Loans without interruption in all market conditions, thus making our Advisor a trusted source for Technology Loans to companies, their management teams and their venture capital and private equity investors.
 
Highly experienced and cohesive management team.  Our Advisor has had the same senior management team of experienced professionals since its inception, thereby creating awareness among companies in our Target Industries, their management and their investors that prospective portfolio companies of Horizon will receive consistent and predictable service, in terms of available loan products and economic terms, underwriting requirements, loan closing process and portfolio management. This consistency allows companies, their management teams and their investors to predict likely outcomes when expending resources in seeking and obtaining Technology Loans from us. Companies may not have the same level of predictability when dealing with other lenders in the Technology Lending market. Our Advisor is led by five senior managers, including its two co-founders, Robert D. Pomeroy, Jr., our Chief Executive Officer, and Gerald A. Michaud, our President, each of whom
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has more than 23 years of experience in Technology Lending. Christopher M. Mathieu, our SVP and Chief Financial Officer, has more than 16 years of Technology Lending experience, and each of John C. Bombara, our SVP and General Counsel, and Daniel S. Devorsetz, our SVP and Chief Credit Officer, has more than nine years experience in Technology Lending. Our Advisor has an additional eight experienced professionals with marketing, legal, accounting, and portfolio management experience in Technology Lending. The co-founders and some of the team have worked together for over 16 years during which they started, built and managed Technology Lending businesses for GATX Ventures, Inc., Transamerica Technology Finance and Financing for Science International. In addition to originating and managing loans and investments on behalf of Compass Horizon, our Advisor has originated and managed loans and investments on behalf of several other externally managed private funds. Since our Advisor commenced operations in 2004 through December 31, 2009, our Advisor has originated over $700 million of investments to more than 115 companies in our Target Industries. As of the date of this prospectus, only the Compass Horizon fund is actively making new investments.
 
Relationships with venture capital and private equity investors.  Our Advisor’s senior management team and managing directors have developed a comprehensive knowledge of the venture capital and private equity firms and their partners that participate in our Target Industries. Because of our Advisor’s senior management and managing directors’ demonstrated history of delivering loan commitments and value to many of these firms’ portfolio companies, our Advisor has developed strong relationships with many of these firms and their partners. The strength and breadth of our Advisor’s venture capital and private equity relationships would take considerable time and expense to develop. We will rely on these relationships to implement our business plan.
 
Well-known brand name.  Our Advisor has originated over $700 million in Technology Loans to more than 115 companies in our Target Industries under the “Horizon Technology Finance” brand. Each of these companies is backed by one or more venture capital or private equity firms, thus creating a network of Target Industry companies and equity sponsors who know of, and have worked with, “Horizon Technology Finance.” In addition, our Advisor has attended, participated in, or moderated venture lending or alternative financing panel sessions at venture capital, technology, life sciences and other industry related events over the past six years. This pro-active participation in the lending market for our Target Industries has created strong and positive brand name recognition for our Advisor. We believe that the “Horizon Technology Finance” brand is a competent, knowledgeable and active participant in the Technology Lending marketplace and will continue to result in a significant number of referrals and prospective investment opportunities in our Target Industries.
 
Demonstrated track record with strong returns.  Our Advisor’s senior managers collectively have also originated, underwritten, and managed more than 440 Technology Loans with an aggregate commitment of more than $1.0 billion from 1993 to 2003 at other organizations including, GATX Ventures, Inc., Transamerica Technology Finance and Financing for Science International. The success of our Advisor’s track record in both up and down business cycles, as described more fully elsewhere in this prospectus, is a result of our Advisor’s knowledge base and its processes developed from its Technology Lending experience. Our Advisor’s developed knowledge base and processes include its unique investment criteria, its creation of an efficient and successful origination process, its establishment of back office operations, its knowledge of staffing needs, its legal, regulatory and institutional compliance knowledge and processes, its designation of specific roles for its investment team members, and its processes for the underwriting, documenting and monitoring of a portfolio of Technology Loans.
 
Flexibility of capital.  With our Advisor’s experience in structuring and managing Technology Loans, our Advisor has provided, and we expect to provide, loan terms to portfolio companies in our Target Industries that provide more value to a portfolio company than loan terms that would otherwise be available from other commercial lenders or other Technology Loan providers. We may be able to offer flexible terms on interest rates, warrant coverage, repayment schedules, advances based upon development milestones, interest only periods, and deferred principal payments that provide valuable flexibility during times of our portfolio companies’ critical cash needs without significantly increasing capital risk. To the extent that additional risk is taken, we may adjust our returns for such risk by obtaining additional commitment, success and non use fees and additional warrants. We expect that allowing our portfolio companies more flexible loan terms will allow our portfolio companies to be successful, while allowing us to achieve more favorable economic returns than are available in traditional commercial financing transactions.
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Disciplined underwriting and monitoring process with focus on preservation of capital.  Our Advisor’s investment process focuses first on capital preservation. The investment process for each proposed transaction involves conducting in depth due diligence, including meeting with the prospective portfolio company’s senior management team, gaining detailed understanding of the prospective portfolio company’s management team experience, its investors and its investors’ support for the prospective portfolio company, business plans, technology, markets, financial projections, fund raising history and future plans and the potential for warrant gains. The due diligence typically includes the use of independent verification with prospective portfolio company’s customers, investors, strategic partners and market research. The results of our Advisor’s due diligence for each proposed transaction are clearly documented in a comprehensive investment memorandum, which is then submitted to our Advisor’s investment committee. As a result of our focus on capital preservation, the principal amount of our loans is generally less than 25% of the enterprise value of the portfolio company.
 
Diverse investment portfolio.  Portfolio diversity is an important component to achieving successful returns for Technology Loans. Our Advisor intends to monitor our loan portfolio regularly to avoid undue focus in any industry, sector, stage of development or geographic area. By regularly monitoring the portfolio for these factors we will attempt to reduce the risk of down market cycles associated with any particular industry, sector, development-stage or geographic area.
 
Stages of Development of Venture Capital and Private Equity-backed Companies
 
Below is a typical development curve for a company in our Target Industries and the various milestones along the development curve where we believe a Technology Loan may be a preferred financing solution:

 
Investment Criteria
 
We have identified several criteria that we believe have proven, and will prove, important in achieving our investment objective with respect to prospective portfolio companies. These criteria provide general guidelines for our investment decisions. However, we caution you that not all of these criteria are met by each portfolio company in which we choose to invest.
 
Portfolio Composition.  We invest in venture capital and private equity-backed development-stage companies in our Target Industries. We have made, and plan to make, investments which will result in a portfolio of investments in companies that are diversified by their stage of development, their Target Industries and sectors of Target
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Industries, and their geographical location, as well as by the venture capital and private equity sponsors that support our portfolio companies.
 
Continuing Support from One or More Venture Capital and Private Equity Investors.  We typically invest in companies in which one or more established venture capital and private equity investors have previously invested and continue to make a contribution to the management of the business. We believe that established venture capital and private equity investors can serve as a committed partner and will assist their portfolio companies and their management teams in creating value.
 
Company Stage of Development.  While we invest in companies at various stages of development, we require that prospective portfolio companies be beyond the seed stage of development and have received at least their first round of venture capital or private equity financing. We expect a prospective portfolio company to demonstrate its ability to advance technology and increase its revenue and operating cash flow over time. The anticipated growth rate of a prospective portfolio company will be a key factor in determining the value that we ascribe to any warrants that we may acquire in connection with making debt investments.
 
Operating Plan.  We generally require that a prospective portfolio company, in addition to having sufficient access to capital to support leverage, demonstrate an operating plan capable of generating cash flows or the ability to raise the additional capital necessary to cover its operating expenses and service its debt. We expect that the enterprise value of a prospective portfolio company should substantially exceed the principal balance of debt borrowed by the company.
 
Liquidation Value of Assets.  The prospective liquidation value of the assets collateralizing our loans is an important factor in our credit analysis. We emphasize both tangible assets, such as accounts receivable, inventory, equipment and real estate, and intangible assets, such as intellectual property, networks and databases and future revenue streams. In some cases, rather than obtaining a lien on intellectual property we may receive a negative pledge covering a company’s intellectual property.
 
Terms.  Although terms vary based on the portfolio company and other conditions, the typical repayment term is between 24 and 48 months. The amortization schedule will vary, but there is typically some form of an interest only period and, in some cases, there is a balloon payment at the end of the term.
 
Warrants and Equity Participation Rights.  We generally receive warrants having terms consistent with the most recent or next round of venture capital and private equity capital financing. We do not view the upside appreciation potential of warrants as a means to mitigate risk, but rather to ensure that the compensation we receive is appropriate for the level of risk being undertaken. We also may seek to receive equity participation rights to invest in a future round of a portfolio company’s equity capital financing through direct capital investments in our portfolio companies. These opportunities to invest are at our option and we are not obligated to make such investments. Other than one investment for $100,000, we have not elected to exercise any equity participation rights.
 
Experienced Management of Portfolio Companies.  We generally require that our portfolio companies have a successful and experienced management team. We also require the portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors.
 
Exit Strategy.  We analyze the potential for that company to increase the liquidity of its equity through a future event that would enable us to realize appreciation in the value of our warrants or other equity interests. Liquidity events typically include an IPO or a sale of the company.
 
Investment Process
 
We believe that our Advisor’s team members are leaders in the Technology Lending industry and that the depth and breadth of experience of our Advisor’s investment professionals exceeds that of many of our competitors. Our Advisor has created an integrated approach to the loan origination, underwriting, approval and documentation process that effectively combines all of the skills of our Advisor’s professionals. This process allows our Advisor to achieve an efficient and timely closing of an investment from the initial contact with a prospective portfolio company through the close of documentation and funding of the investment, while ensuring that our Advisor’s rigorous underwriting standards are consistently maintained. During the investment process, several of our
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Advisor’s investment professionals are involved in the analysis, decision-making and documentation of prospective investments. After closing, our Advisor typically employs a “hands on” portfolio management process, regularly contacting our portfolio companies. Our Advisor also utilizes a proprietary credit rating system designed to effectively and efficiently assist our Advisor’s portfolio managers’ and senior management’s analysis of the credit quality of investments on an individual basis and a portfolio basis and our ability to allocate internal resources accordingly.
 
We believe that the high level of involvement by our Advisor’s staff in the various phases of the investment process allows us to minimize the credit risk while delivering superior service to our portfolio companies.
 
Origination.  Our Advisor’s loan origination process begins with its industry-focused regional managing directors who are responsible for identifying, contacting and screening prospects. The managing directors meet with key decision makers and deal referral sources such as venture capital and private equity firms and management teams and legal firms, accounting firms, investment banks and other lenders to source prospective portfolio companies. We believe our brand name and management team are well known within the Technology Lending community, as well as by many repeat entrepreneurs and board members of prospective portfolio companies. These broad relationships, which reach across the Technology Lending industry, give rise to a significant portion of our Advisor’s deal origination.
 
The responsible managing director of our Advisor obtains review materials from the prospective portfolio company and from those materials, as well as other available information, determines whether it is appropriate for our Advisor to issue a non-binding term sheet. The managing director bases this decision to proceed on his or her experience, the competitive environment and the prospective portfolio company’s needs and also seeks the counsel of our Advisor’s senior management and investment team.
 
Term Sheet.  If the managing director determines, after review and consultation with senior management, that the potential transaction meets our Advisor’s initial credit standards, our Advisor will issue a non-binding term sheet to the prospective portfolio company.
 
The terms of the transaction are tailored to a prospective portfolio company’s specific funding needs while taking into consideration market dynamics, the quality of the management team, the venture capital and private equity investors involved and applicable credit criteria, which may include the prospective portfolio company’s existing cash resources, the development of its technology and the anticipated timing for the next round of equity financing.
 
Underwriting.  Once the term sheet has been negotiated and executed and the prospective portfolio company has remitted a good faith deposit, the managing director will request additional due diligence materials from the prospective portfolio company and arrange for a due diligence visit.
 
Our Advisor typically requests the following information as part of the underwriting process:

 	• 	annual and interim financial information;	
 	 	 	
 	• 	capitalization tables showing details of equity capital raised and ownership;	
 	 	 	
 	• 	recent presentations to investors or board members covering the portfolio company’s current status and market opportunity;	
 	 	 	
 	• 	detailed business plan, including an executive summary and discussion of market opportunity;	
 	 	 	
 	• 	detailed background on all members of management;	
 	 	 	
 	• 	articles and papers written about the prospective portfolio company and its market;	
 	 	 	
 	• 	detailed forecast for the current and subsequent fiscal year including monthly cash forecast;	
 	 	 	
 	• 	information on competitors and the prospective portfolio company’s competitive advantage;	
 	 	 	
 	• 	marketing information on the prospective portfolio company’s products, if any;	
 	 	 	
 	• 	information on the prospective portfolio company’s intellectual property; and	

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 	• 	introduction to the prospective portfolio company’s scientific advisory board and industry thought leaders.	
 
Due Diligence.  The due diligence process includes a formal visit to the prospective portfolio company’s location and interviews with the prospective portfolio company’s senior management team including its Chief Executive Officer, Chief Financial Officer, Chief Scientific or Technology Officer, principal marketing or sales professional and other key managers. The process includes contact with key analysts that affect the prospective portfolio company’s business, including analysts that follow the technology market, thought leaders in our Target Industries and important customers or partners, if any. Outside sources of information are reviewed, including industry publications, scientific and market articles, Internet publications, publicly available information on competitors or competing technologies and information known to our Advisor’s investment team from their experience in the technology markets.
 
A key element of the due diligence process is interviewing key existing investors in the prospective portfolio company, who are often also members of the prospective portfolio company’s board of directors. While these board members and/or investors are not independent sources of information, their support for management and willingness to support the prospective portfolio company’s further development are critical elements of our decision making process.
 
Investment Memorandum.  Upon completion of the due diligence process and review and analysis of all of the information provided by the prospective portfolio company and obtained externally, our Advisor’s assigned credit officer prepares an investment memorandum for review and approval.
 
The investment memorandum generally includes:

 	• 	an investment thesis;	
 	 	 	
 	• 	an overview of the prospective portfolio company and transaction;	
 	 	 	
 	• 	a discussion of how much of the investment is at risk;	
 	 	 	
 	• 	an analysis of why the investment is worth the risk;	
 	 	 	
 	• 	a discussion of risks and mitigants;	
 	 	 	
 	• 	a loan description;	
 	 	 	
 	• 	an overview of the prospective portfolio company’s market, competition, products, technology, sales pipeline, management, intellectual property, etc.;	
 	 	 	
 	• 	a discussion of venture capital and private equity sponsorship;	
 	 	 	
 	• 	summary financial results;	
 	 	 	
 	• 	projections and cash forecasts, including company forecasts and potential downside scenario projections; and	
 	 	 	
 	• 	an exit valuation.	
 
The investment memorandum is reviewed by our Advisor’s senior credit officer and submitted to our Advisor’s investment committee for approval.
 
Investment Committee.  Our board of directors delegates authority for all investment decisions to our Advisor’s investment committee. Our Advisor’s investment committee has made investment decisions for Compass Horizon as well as other affiliated funds. The investment committee currently consists of Robert D. Pomeroy, Jr., Gerald A. Michaud, Daniel S. Devorsetz and Kevin T. Walsh.
 
Our Advisor’s investment committee will be responsible for overall credit policy, portfolio management, approval of all investments, portfolio monitoring and reporting and managing of problem accounts. The committee will interact with the entire staff of our Advisor to review potential transactions and deal flow. This interaction of cross-functional members of our Advisor’s staff assures efficient transaction sourcing, negotiating and underwriting throughout the transaction process. Portfolio performance and current market conditions will be reviewed and
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discussed by the investment committee on a regular basis to assure that transaction structures and terms are consistent and current.
 
The portfolio manager responsible for the account will present any proposed transaction to the investment committee at its committee meeting. Other deal team members from our Advisor are encouraged to participate in the committee meeting, bringing market, transaction and competitive information to the decision making process. The investment decision must be approved by a majority of the committee and by both Mr. Pomeroy and Mr. Michaud.
 
Loan Closing and Funding.  Approved investments are documented and closed by our Advisor’s in-house legal and loan administration staff. Loan documentation is based upon standard templates created by our Advisor and is customized for each transaction to reflect the specific deal terms. The transaction documents typically include a loan and security agreement, warrant agreement and applicable perfection documents, including Uniform Commercial Code financing statements, and, as applicable, may also include a landlord agreement, patent and trademark security grants, a subordination agreement and other standard agreements for commercial loans in the Technology Lending industry. Funding requires final approval by our Advisor’s General Counsel, Chief Executive Officer or President, Chief Financial Officer and Chief Credit Officer.
 
Portfolio Management and Reporting.  Our Advisor maintains a “hands on” approach to maintain communication with our portfolio companies. At least quarterly, our Advisor contacts our portfolio companies for operational and financial updates by phone and performs onsite reviews on an annual basis. Our Advisor may contact portfolio companies deemed to have greater credit risk on a monthly basis. Our Advisor requires all private companies to provide financial statements on a monthly basis. For public companies, our Advisor typically relies on publicly reported quarterly financials. Our Advisor also typically receives copies of bank and security statements, as well as any other information required to verify reported financial information. Among other things, this allows our Advisor to identify any unexpected developments in the financial performance or condition of the company.
 
Our Advisor has developed a proprietary credit rating system to analyze the quality of our loans. Using this system, our Advisor analyzes and then rates the credit risk within the portfolio on a monthly basis. Each portfolio company is rated on a 1 through 4 scale, with 3 representing the rating for a standard level of risk. A rating of 4 represents an improved and better credit quality. A rating of 2 or 1 represents a deteriorating credit quality and increasing risk. Newly funded investments are typically assigned a rating of 3, unless extraordinary circumstances require otherwise. These investment ratings are generated internally by our Advisor, and we cannot guarantee that others would assign the same ratings to our portfolio investments or similar portfolio investments.
 
Our Advisor closely monitors portfolio companies rated a 1 or 2 for adverse developments. In addition, our Advisor has regular contact with the management, board of directors and major equity holders of these portfolio companies in order to discuss strategic initiatives to correct the deterioration of the portfolio company (e.g., cost reductions, new equity issuance or strategic sale of the business).
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The table below describes each rating level:

Rating	 	 	
 	 	 	
4	 	The portfolio company has performed in excess of our expectations at underwriting as demonstrated by exceeding revenue milestones, clinical milestones, or other operating metrics or as a result of raising capital well in excess of our underwriting assumptions. Generally the portfolio company displays one or more of the following: its enterprise value greatly exceeds our loan balance; it has achieved cash flow positive operations or has sufficient cash resources to cover the remaining balance of the loan; there is strong potential for warrant gains from our warrants; and there is a high likelihood that the borrower will receive favorable future financing to support operations. Loans rated 4 are the lowest risk profile in our portfolio and there is no expected risk of principal loss.	
3	 	The portfolio company has performed to our expectations at underwriting as demonstrated by hitting revenue milestones, clinical milestones, or other operating metrics. It has raised, or is expected to raise, capital consistent with our underwriting assumptions. Generally the portfolio company displays one or more of the following: its enterprise value comfortably exceeds our loan balance; it has sufficient cash resources to operate per its plan; it is expected to raise additional capital as needed; and there continues to be potential for warrant gains from our warrants. All new loans are rated 3 when approved and thereafter 3 rated loans represent a standard risk profile, with no loss currently expected.	
2	 	The portfolio company has performed below our expectations at underwriting as demonstrated by missing revenue milestones, delayed clinical progress, or otherwise failing to meet projected operating metrics. It may have raised capital in support of the poorer performance but generally on less favorable terms than originally contemplated at the time of underwriting. Generally the portfolio company displays one or more of the following: its enterprise value exceeds our loan balance but at a lower multiple than originally expected; it has sufficient cash to operate per its plan but liquidity may be tight; and it is planning to raise additional capital but there is uncertainty and the potential for warrant gains from our warrants are possible, but unlikely. Loans rated 2 represent an increased level of risk. While no loss is currently anticipated for a 2 rated loan, there is potential for future loss of principal.	
1	 	The portfolio company has performed well below plan as demonstrated by materially missing revenue milestones, delayed or failed clinical progress, or otherwise failing to meet operating metrics. The portfolio company has not raised sufficient capital to operate effectively or retire its debt obligation to us. Generally the portfolio company displays one or more of the following: its enterprise value may not exceed our loan balance; it has insufficient cash to operate per its plan and liquidity may be tight; and there are uncertain plans to raise additional capital or the portfolio company is being sold under distressed conditions. There is no potential for warrant gains from our warrants. Loans rated 1 are generally put on non-accrual and represent a high degree of risk of loss. The fair value of 1 rated loans is reduced to the amount that is expected to be recovered from liquidation of the collateral.	
 
For a discussion of the ratings of our existing portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Composition and Investment Activity.”
 
Managerial Assistance
 
As a business development company, we will offer, through our Advisor, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance may involve, among other things, monitoring the operations of the portfolio companies, participating in board of directors and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance.
 
We may receive fees for these services, though we may reimburse our Advisor for its expenses related to providing such services on our behalf.
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Competition
 
We compete for investments with other business development companies and investment funds, as well as traditional financial services companies such as commercial banks and other financing sources. Some of our competitors are larger and have greater financial, technical, marketing and other resources than we have. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act will impose on us as a business development company or that the Code will impose on us as a RIC. We believe we compete effectively with these entities primarily on the basis of the experience, industry knowledge and contacts of our Advisor’s investment professionals, its responsiveness and efficient investment analysis and decision-making processes, its creative financing products and highly customized investment terms. We do not intend to compete primarily on the interest rates we offer and believe that some competitors make loans with rates that are comparable or lower than our rates. For additional information concerning the competitive risks see “Risk Factors — Risks Related to Our Business and Structure — We operate in a highly competitive market for investment opportunities, and if we are not able to compete effectively, our business, results of operations and financial condition may be adversely affected and the value of your investment in us could decline.”
 
Portfolio Turnover
 
We do not have a formal portfolio turnover policy and do not intend to adopt one.
 
Employees
 
We do not have any employees. Each of our executive officers described under “Management” below is an employee of our Advisor. The day-to-day investment operations will be managed by our Advisor. As of June 30, 2010, our Advisor had 13 employees, including investment and portfolio management professionals, operations and accounting professionals, legal counsel and administrative staff. In addition, we reimburse our Advisor for our allocable portion of expenses incurred by it in performing its obligations under the administration agreement, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
 
Properties
 
We do not own any real estate or other physical properties materially important to our operation. Our headquarters and our Advisor’s headquarters are currently located at 76 Batterson Park Road, Farmington, Connecticut 06032.
 
Legal Proceedings
 
Neither we nor our Advisor are currently subject to any material legal proceedings.
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PORTFOLIO COMPANIES
 
All of the investments listed below are currently direct or indirect assets of Compass Horizon and will become assets of the Company following the Share Exchange. Additionally, all of the loans listed below are currently performing and are unimpaired. Other than these investments, our only formal relationships with our portfolio companies are the managerial assistance that we may provide upon request and the board observer or participation rights we may receive in connection with our investment. We do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would “control” a portfolio company if we owned more than 25% of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.
 
The following table sets forth certain information for each portfolio company in which we had an investment as of June 30, 2010.

Name and Address of
	 	 	 	 	 	 	 	Maturity
	 	 	Cost of
	 	 	 	 	
Portfolio Company(1)	 	Target Industry — Sector	 	Type of Investment(2)	 	Interest(3)	 	of Loans	 	 	Investment	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ACT Biotech, Inc.
717 Market Street, Suite 650
San Francisco, CA 94103	 	Life Sciences — Biotechnology	 	Term Loan
Preferred Stock Warrants	 	12.10%	 	 	6/1/13	 	 	$	1,000,000
23,437	 	 	$	1,000,000
23,437	 	
Advanced BioHealing, Inc.
10933 N. Torrey Pines Rd.,
Suite 200
La Jolla, CA 92037	 	Life Science — Biotechnology	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	8,887	 	 	 	123,212	 	
Ambit Biosciences, Inc.
4215 Sorrento Valley Blvd.
San Diego, CA 92121	 	Life Science — Biotechnology	 	Term Loan
Preferred Stock Warrants	 	12.25%	 	 	10/1/13	 	 	 	6,000,000
142,943	 	 	 	6,000,000
174,224	 	
Anesiva, Inc.(4)
650 Gateway Boulevard
South San Francisco, CA 94080	 	Life Science — Biotechnology	 	Common Stock Warrants	 	 	 	 	 	 	 	 	18,233	 	 	 	—	 	
Arcot Systems, Inc.
455 West Maude Avenue
Sunnyvale, CA 94085	 	Technology — Software	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	5,001	 	 	 	56,466	 	
BioScale, Inc.
75 Sidney Street
Cambridge, MA 02139	 	Healthcare Information and
Services — Diagnostics	 	Term Loan
Preferred Stock Warrants	 	12.00%	 	 	8/1/12	 	 	 	3,147,324
12,786	 	 	 	3,147,324
7,216	 	
Calypso Medical
Technologies, Inc.
2101 Fourth Avenue, Suite 500
Seattle, WA 98121	 	Life Science — Medical Device	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	17,047	 	 	 	72,950	 	
Clarabridge, Inc.
11400 Commerce Park Drive,
Suite 500
Reston, VA 20191	 	Technology — Software	 	Term Loan
Term Loan
Preferred Stock Warrants	 	12.50%
12.50%	 	 	1/1/13
6/1/13	 	 	 	1,383,830
750,000
27,700	 	 	 	1,383,830
750,000
24,138	 	
Concentric Medical, Inc.
301 East Evelyn Avenue
Mountain View, CA 94041	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	12.04%	 	 	9/1/13	 	 	 	7,000,000

84,497	 	 	 	7,000,000

85,574	 	
Courion Corporation
1881 Worcester Road
Framingham, MA 01701	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	11.45%	 	 	12/1/11	 	 	 	1,584,520
6,715	 	 	 	1,584,520
23,467	 	
DriveCam, Inc.
8911 Balboa Ave.
San Diego, CA 92123	 	Technology — Software	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	19,670	 	 	 	7,426	 	
Enphase Energy, Inc.
201 1st Street, Suite 300
Petaluma, CA 94952	 	Technology — Energy Efficiency	 	Term Loan
Preferred Stock Warrants	 	12.60%	 	 	10/1/13	 	 	 	7,000,000
122,053	 	 	 	7,000,000
117,873	 	
EnteroMedics, Inc.(4)
2800 Patton Road
Saint Paul, MN 55113	 	Life Science — Medical Device	 	Common Stock Warrants	 	 	 	 	 	 	 	 	346,795	 	 	 	5,883	 	
Everyday Health, Inc.
f/k/a Waterfront Media, Inc.
45 Main Street
Brooklyn, NY 11201	 	Technology — Consumer-related
Technologies	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	5/1/13	 	 	 	5,000,000
68,658	 	 	 	5,000,000
67,050	 	

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Name and Address of
	 	 	 	 	 	 	 	Maturity
	 	 	Cost of
	 	 	 	 	
Portfolio Company(1)	 	Target Industry — Sector	 	Type of Investment(2)	 	Interest(3)	 	of Loans	 	 	Investment	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Genesis Networks, Inc.
One Penn Plaza, Suite 2010
New York, NY 10119	 	Technology — Networking	 	Term Loan
Preferred Stock Warrants	 	11.80%	 	 	8/1/12	 	 	 	4,000,000
81,670	 	 	 	3,777,163
28,010	 	
Grab Networks, Inc.
21000 Atlantic Boulevard
Dulles, VA 20166	 	Technology — Networking	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	4/1/12	 	 	 	3,056,376
73,866	 	 	 	3,056,376
23	 	
Hatteras Networks, Inc.
523 Davis Drive, Suite 500
Durham, NC 27713	 	Technology — Communications	 	Term Loan
Preferred Stock Warrants	 	12.40%	 	 	2/1/11	 	 	 	1,767,857
660	 	 	 	1,767,857
34,190	 	
Impinj, Inc.
701 N. 34th Street, Suite 300
Seattle, WA 98103	 	Technology — Semiconductor	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	7,348	 	 	 	0	 	
IntelePeer, Inc.
2855 Campus Drive, Suite 200
San Mateo, CA 94403	 	Technology — Networking	 	Term Loan
Term Loan
Term Loan
Preferred Stock Warrants	 	12.43%
12.33%
12.33%
	 	 	4/1/12
6/1/12
10/1/12	 	 	 	695,346
778,303
1,459,025
39,384	 	 	 	695,346
778,303
1,459,025
50,518	 	
iSkoot, Inc.
501 2nd Street, Suite 216
San Francisco, CA 94107	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.75%	 	 	5/1/13	 	 	 	4,000,000
59,329	 	 	 	4,000,000
37,635	 	
Mall Networks, Inc.
One Cranberry Hill, Suite 403
Lexington, MA 02421	 	Technology — Internet and
Media	 	Term Loan
Preferred Stock Warrants	 	11.75%	 	 	6/1/12	 	 	 	2,056,692
16,155	 	 	 	2,056,692
37,021	 	
Motion Computing, Inc.
8601 RR 2222, Building II
Austin, TX 78730	 	Technology — Networking	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	7,046	 	 	 	289,475	 	
Netuitive, Inc.
12700 Sunrise Valley Drive
Reston, VA 20191	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.90%	 	 	4/1/11	 	 	 	369,541
27,287	 	 	 	369,541
17,078	 	
NewRiver, Inc.
200 Brickstone Square, 5th Floor
Andover, MA 01810	 	Technology — Software	 	Term Loan	 	11.60%	 	 	1/1/12	 	 	 	2,665,444	 	 	 	2,665,444	 	
Novalar Pharmaceuticals, Inc.
12555 High Bluff Drive
Suite 300
San Diego, CA 92130	 	Life Science — Biotechnology	 	Term Loan
Preferred Stock Warrants	 	12.00%	 	 	6/1/12	 	 	 	4,115,706
69,249	 	 	 	4,115,706
3	 	
OpenPeak, Inc.
1750 Clint Moore Road
Boca Raton, FL 33487	 	Technology — Communications	 	Term Loan
Preferred Stock Warrants	 	11.86%	 	 	12/1/13	 	 	 	6,666,667
89,399	 	 	 	6,666,667
89,399	 	
Pharmasset, Inc.(4)
303-A College Road East
Princeton, NJ 08540	 	Life Science — Biotechnology	 	Term Loan
Term Loan
Term Loan
Common Stock Warrants	 	12.00%
12.00%
12.50%	 	 	8/1/11
1/1/12
10/1/12	 	 	 	1,567,198
2,118,007
3,044,669
251,247	 	 	 	1,567,198
2,118,007
3,044,669
700,028	 	
PixelOptics, Inc.
5241 Valleypark Drive
Roanoke, VA 24019	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	1/1/13	 	 	 	5,000,000
61,131	 	 	 	5,000,000
68,273	 	
Plateau Systems, Ltd.
4401 Wilson Boulevard
Suite 400
Arlington, VA 22203	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.40%	 	 	9/1/10	 	 	 	286,095
7,348	 	 	 	286,095
33,525	 	
Precision Therapeutics, Inc.
2516 Jane Street
Pittsburgh, PA 15203	 	Healthcare Information and
Services — Diagnostics	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	3/1/12	 	 	 	4,443,386
52,075	 	 	 	4,443,386
149,717	 	
Radisphere National Radiology Group, Inc.
23625 Commerce Park, Suite 204
Beachwood, OH 44122	 	Healthcare Information and
Services — Diagnostics	 	Term Loan
Preferred Stock Warrants	 	12.75%	 	 	1/1/14	 	 	 	10,000,000
180,331	 	 	 	10,000,000
249,217	 	
Revance Therapeutics, Inc.
2400 Bayshore Parkway,
Suite 100
Mountain View, CA 94043	 	Life Science — Biotechnology	 	Term Loan
Term Loan
Preferred Stock Warrants	 	10.50%
10.50%	 	 	12/1/11
3/1/13	 	 	 	2,139,667
4,250,000
223,789	 	 	 	2,139,667
4,250,000
116,666	 	
Satcon Technology Corporation
27 Drydock Avenue
Boston, MA 02210	 	Cleantech — Energy Efficiency	 	Term Loan
Term Loan
Preferred Stock Warrants	 	12.58%
12.58%	 	 	1/1/14
1/1/14	 	 	 	10,000,000
2,000,000
342,512	 	 	 	10,000,000
2,000,000
409,897	 	
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Name and Address of
	 	 	 	 	 	 	 	Maturity
	 	 	Cost of
	 	 	 	 	
Portfolio Company(1)	 	Target Industry — Sector	 	Type of Investment(2)	 	Interest(3)	 	of Loans	 	 	Investment	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SnagAJob.com, Inc.
4880 Cox Road
Suite 200
Glen Allen, VA 23060	 	Technology — Consumer-related
Technologies	 	Term Loan
Preferred Stock Warrants	 	11.50%	 	 	6/1/12	 	 	 	2,877,742
22,618	 	 	 	2,877,742
37,548	 	
Starcite, Inc.
1650 Arch Street
Philadelphia, PA 19103	 	Technology — Consumer-related
Technologies	 	Term Loan
Preferred Stock Warrants	 	12.05%	 	 	9/1/12	 	 	 	3,367,273
23,579	 	 	 	3,367,273
26,820	 	
StreamBase Systems, Inc.
181 Spring Street
Lexington, MA 02421	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.51%	 	 	11/1/13	 	 	 	4,000,000
67,050	 	 	 	4,000,000
67,050	 	
Tagged, Inc.
840 Battery Street, 2nd Floor
San Francisco, CA 94111	 	Technology — Consumer-related
Technologies	 	Term Loan
Term Loan
Preferred Stock Warrants	 	12.78%
11.46%	 	 	5/1/12
8/1/12	 	 	 	1,718,080
639,368
16,586	 	 	 	1,718,080
639,368
26,150	 	
Talyst, Inc.
13555 SE 36 Street, Suite 150
Bellevue, WA 98006	 	Life Sciences — Other Healthcare
Services	 	Term Loan
Preferred Stock Warrants	 	12.10%	 	 	12/1/13	 	 	 	2,500,000
75,774	 	 	 	2,500,000
75,774	 	
Tengion, Inc.
2900 Potshop Lane, Suite 100
East Norriton, PA 19403	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	12.26%	 	 	9/1/11	 	 	 	4,437,554
15,276	 	 	 	4,437,554
37	 	
Transave, Inc.
11 Deer Park Drive, Suite 117
Monmouth Junction, NJ 08852	 	Life Science — Biotechnology	 	Term Loan
Term Loan
Convertible Note
Convertible Note
Preferred Stock Warrants	 	11.75%
11.75%
10.00%
10.00%
	 	 	2/29/12
7/1/12
6/30/10
6/30/10	 	 	 	2,190,153
1,705,911
106,907
103,490
11,974	 	 	 	2,190,153
1,705,911
106,907
103,490
46,934	 	
Vette Corp.
14 Manchester Square, Suite 210
Portsmouth, NH 03801	 	Technology — Data Storage	 	Term Loan
Preferred Stock Warrants	 	11.85%	 	 	3/1/12	 	 	 	3,651,499
26,638	 	 	 	3,651,499
123	 	
ViOptix, Inc.
47224 Mission Falls Ct.
Fremont, CA 94539	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	13.55%	 	 	11/1/11	 	 	 	1,328,907
12,924	 	 	 	1,184,167
0	 	
XIOtech, Inc.
6455 Flying Cloud Drive
Eden Prairie, MN 55344	 	Technology — Data Storage	 	Term Loan
Preferred Stock Warrants	 	12.50%	 	 	8/1/11	 	 	 	3,928,475
22,045	 	 	 	3,928,475
79,165	 	
Xoft, Inc.
345 Potrero Avenue
Sunnyvale, CA 94085	 	Life Science — Medical Device	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	13,265	 	 	 	0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments	 	 	 	 	 	 	 	 	 	 	 	$	144,702,989	 	 	$	144,992,626	 	

 
 	 	 	
(1)	 	Debt and warrant investments have been pledged as collateral under the Credit Facility.	
(2)	 	All investments are less than 5% ownership of the class and ownership of the portfolio company.	

(3)	 	All interest is payable in cash due monthly in arrears, unless otherwise indicated and applies only to our debt investments. Amount is the annual interest rate on the debt investment and does not include any additional fees related to the investment such as commitment fees or prepayment fees. The majority of the debt investments are at fixed rates for the term of the loan. For each debt investment we have provided the current interest rate in effect as of June 30, 2010. For variable rate debt investments we have also provided the reference index plus the applicable spread which resets monthly.	

(4)	 	Portfolio company is a public company.	
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Table of Contents
The following table sets forth certain information for each portfolio company in which we had an investment as of December 31, 2009.

Name and Address of
	 	 	 	 	 	 	 	Maturity
	 	 	Cost of
	 	 	 	 	
Portfolio Company(1)	 	Target Industry — Sector	 	Type of Investment(2)	 	Interest(3)	 	of Loans	 	 	Investment	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Advanced BioHealing, Inc.
10933 N. Torrey Pines Rd.,
Suite 200
La Jolla, CA 92037	 	Life Science — Biotechnology	 	Preferred Stock Warrants	 	 	 	 	 	 	 	$	8,887	 	 	$	41,836	 	
Ambit Biosciences, Inc.
4215 Sorrento Valley Blvd.
San Diego, CA 92121	 	Life Science — Biotechnology	 	Term Loan
Preferred Stock Warrants	 	12.15%	 	 	6/1/11	 	 	 	1,271,672
17,403	 	 	 	1,271,672
54,612	 	
Anesiva, Inc.(4)
650 Gateway Boulevard
South San Francisco, CA 94080	 	Life Science — Biotechnology	 	Common Stock Warrants	 	 	 	 	 	 	 	 	18,233	 	 	 	—	 	
Arcot Systems, Inc.
455 West Maude Avenue
Sunnyvale, CA 94085	 	Technology — Software	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	5,001	 	 	 	57,074	 	
BioScale, Inc.
75 Sidney Street
Cambridge, MA 02139	 	Healthcare Information and
Services — Diagnostics	 	Term Loan
Preferred Stock Warrants	 	12.00%	 	 	8/1/12	 	 	 	3,793,151
12,786	 	 	 	3,527,630
32,956	 	
Calypso Medical
Technologies, Inc.
2101 Fourth Avenue, Suite 500
Seattle, WA 98121	 	Life Science — Medical Device	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	17,047	 	 	 	74,699	 	
Clarabridge, Inc.
11400 Commerce Park Drive,
Suite 500
Reston, VA 20191	 	Technology — Software	 	Term Loan
Term Loan
Preferred Stock Warrants	 	12.50%
12.50%	 	 	1/1/13
6/1/13	 	 	 	1,500,000
750,000
27,700	 	 	 	1,500,000
750,000
31,439	 	
Concentric Medical, Inc.
301 East Evelyn Avenue
Mountain View, CA 94041	 	Life Science — Medical Device	 	Revolving Loan

Preferred Stock Warrants	 	10.00%
(Prime + 3.25)%	 	 	7/1/10	 	 	 	3,333,334

9,402	 	 	 	3,333,334

10,856	 	
Courion Corporation
1881 Worcester Road
Framingham, MA 01701	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	11.45%	 	 	12/1/11	 	 	 	2,055,297
6,715	 	 	 	2,055,297
16,395	 	
DriveCam, Inc.
8911 Balboa Ave.
San Diego, CA 92123	 	Technology — Software	 	Preferred Stock Warrants	 	 	 	 	 	 	 	 	19,670	 	 	 	15,208	 	
EnteroMedics, Inc.(4)
2800 Patton Road
Saint Paul, MN 55113	 	Life Science — Medical Device	 	Common Stock Warrants	 	 	 	 	 	 	 	 	346,795	 	 	 	10,370	 	
F & S Health Care Services, Inc.
23625 Commerce Park, Suite 204
Beachwood, OH 44122	 	Healthcare Information and
Services — Diagnostics	 	Term Loan
Preferred Stock Warrants	 	11.80%	 	 	12/1/12	 	 	 	7,500,000
32,148	 	 	 	7,500,000
104,848	 	
Genesis Networks, Inc.
One Penn Plaza, Suite 2010
New York, NY 10119	 	Technology — Networking	 	Term Loan
Preferred Stock Warrants	 	11.80%	 	 	8/1/12	 	 	 	4,000,000
53,563	 	 	 	3,600,000
20	 	
Grab Networks, Inc.
21000 Atlantic Boulevard
Dulles, VA 20166	 	Technology — Networking	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	4/1/12	 	 	 	3,655,638
73,866	 	 	 	3,655,638
83,838	 	
Hatteras Networks, Inc.
523 Davis Drive, Suite 500
Durham, NC 27713	 	Technology — Communications	 	Term Loan
Preferred Stock Warrants	 	12.40%	 	 	2/1/11	 	 	 	2,451,010
660	 	 	 	2,451,010
35,009	 	
Impinj, Inc.
701 N. 34th Street, Suite 300
Seattle, WA 98103	 	Technology — Semiconductor	 	Term Loan

Preferred Stock Warrants
	 	11.50%
(Prime + 4.25)%	 	 	1/1/11	 	 	 	866,667

7,348	 	 	 	866,667

34,329	 	
IntelePeer, Inc.
2855 Campus Drive, Suite 200
San Mateo, CA 94403	 	Technology — Networking	 	Term Loan
Term Loan
Term Loan
Preferred Stock Warrants	 	12.43%
12.33%
12.33%
	 	 	4/1/12
6/1/12
10/1/12	 	 	 	857,704
943,224
1,718,073
39,384	 	 	 	857,704
943,224
1,718,073
52,399	 	

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Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Name and Address of
	 	 	 	 	 	 	 	Maturity
	 	 	Cost of
	 	 	 	 	
Portfolio Company(1)	 	Target Industry — Sector	 	Type of Investment(2)	 	Interest(3)	 	of Loans	 	 	Investment	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
iSkoot, Inc.
501 2nd Street, Suite 216
San Francisco, CA 94107	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.75%	 	 	5/1/13	 	 	 	4,000,000
59,329	 	 	 	4,000,000
59,329	 	
Mall Networks, Inc.
One Cranberry Hill, Suite 403
Lexington, MA 02421	 	Technology — Internet and
media	 	Term Loan
Preferred Stock Warrants	 	11.75%	 	 	6/1/12	 	 	 	2,500,000
16,155	 	 	 	2,500,000
34,932	 	
Motion Computing, Inc.
8601 RR 2222, Building II
Austin, TX 78730	 	Technology — Networking	 	Term Loan
Term Loan
Preferred Stock Warrants	 	12.25%
12.25%	 	 	4/1/11
1/1/12	 	 	 	1,427,626
2,134,388
8,808	 	 	 	1,427,626
2,134,388
464,748	 	
Netuitive, Inc.
12700 Sunrise Valley Drive
Reston, VA 20191	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.90%	 	 	4/1/11	 	 	 	573,026
27,287	 	 	 	573,026
42,675	 	
NewRiver, Inc.
200 Brickstone Square, 5th Floor
Andover, MA 01810	 	Technology — Software	 	Term Loan	 	11.60%	 	 	1/1/12	 	 	 	3,410,859	 	 	 	3,410,859	 	
Novalar Pharmaceuticals, Inc.
12555 High Bluff Drive
Suite 300
San Diego, CA 92130	 	Life Science — Biotechnology	 	Term Loan
Preferred Stock Warrants	 	12.00%	 	 	6/1/12	 	 	 	4,856,259
69,249	 	 	 	4,856,259
78,598	 	
Pharmasset, Inc.(4)
303-A College Road East
Princeton, NJ 08540	 	Life Science — Biotechnology	 	Term Loan
Term Loan
Term Loan
Common Stock Warrants	 	12.00%
12.00%
12.50%	 	 	8/1/11
1/1/12
10/1/12	 	 	 	2,224,917
2,743,804
3,333,333
251,247	 	 	 	2,224,917
2,743,804
3,333,333
437,046	 	
PixelOptics, Inc.
5241 Valleypark Drive
Roanoke, VA 24019	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	1/1/13	 	 	 	5,000,000
61,131	 	 	 	5,000,000
61,131	 	
Plateau Systems, Ltd.
4401 Wilson Boulevard
Suite 400
Arlington, VA 22203	 	Technology — Software	 	Term Loan
Preferred Stock Warrants	 	12.40%	 	 	9/1/10	 	 	 	743,743
7,348	 	 	 	743,743
34,328	 	
Precision Therapeutics, Inc.
2516 Jane Street
Pittsburgh, PA 15203	 	Healthcare Information and
Services — Diagnostics	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	3/1/12	 	 	 	5,000,000
52,075	 	 	 	5,000,000
61,132	 	
Revance Therapeutics, Inc.
2400 Bayshore Parkway,
Suite 100
Mountain View, CA 94043	 	Life Science — Biotechnology	 	Term Loan
Preferred Stock Warrants	 	10.50%	 	 	12/1/11	 	 	 	2,780,564
155,399	 	 	 	2,780,564
49,433	 	
SnagAJob.com, Inc.
4880 Cox Road
Suite 200
Glen Allen, VA 23060	 	Technology — Consumer-related
technologies	 	Term Loan
Preferred Stock Warrants	 	11.50%	 	 	6/1/12	 	 	 	3,500,000
22,618	 	 	 	3,500,000
38,448	 	
Starcite, Inc.
1650 Arch Street
Philadelphia, PA 19103	 	Technology — Consumer-related
technologies	 	Term Loan
Preferred Stock Warrants	 	12.05%	 	 	9/1/12	 	 	 	4,000,000
23,579	 	 	 	4,000,000
27,463	 	
Tagged, Inc.
840 Battery Street, 2nd Floor
San Francisco, CA 94111	 	Technology — Consumer-related
technologies	 	Term Loan
Term Loan
Preferred Stock Warrants	 	12.78%
11.46%	 	 	5/1/12
8/1/12	 	 	 	2,121,216
750,000
16,586	 	 	 	2,121,216
750,000
26,776	 	
Tengion, Inc.
2900 Potshop Lane, Suite 100
East Norriton, PA 19403	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	12.26%	 	 	9/1/11	 	 	 	5,772,622
15,276	 	 	 	5,772,622
50,413	 	
Transave, Inc.
11 Deer Park Drive, Suite 117
Monmouth Junction, NJ 08852	 	Life Science — Biotechnology	 	Term Loan
Term Loan
Convertible Note
Preferred Stock Warrants	 	11.75%
11.75%
10.00%	 	 	2/29/12
7/1/12
6/30/10	 	 	 	2,737,903
2,000,000
101,907
11,964	 	 	 	2,737,903
2,000,000
101,907
44,604	 	
Vette Corp.
14 Manchester Square, Suite 210
Portsmouth, NH 03801	 	Technology — Data Storage	 	Term Loan
Preferred Stock Warrants	 	11.85%	 	 	3/1/12	 	 	 	4,563,684
26,638	 	 	 	4,563,684
68,658	 	
ViOptix, Inc.
47224 Mission Falls Ct.
Fremont, CA 94539	 	Life Science — Medical Device	 	Term Loan
Preferred Stock Warrants	 	13.55%	 	 	11/1/11	 	 	 	1,740,569
12,924	 	 	 	1,640,137
21,970	 	
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Name and Address of
	 	 	 	 	 	 	 	Maturity
	 	 	Cost of
	 	 	 	 	
Portfolio Company(1)	 	Target Industry — Sector	 	Type of Investment(2)	 	Interest(3)	 	of Loans	 	 	Investment	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Everyday Health, Inc.
f/k/a Waterfront Media, Inc.
45 Main Street
Brooklyn, NY 11201	 	Technology — Consumer-related
technologies	 	Term Loan
Preferred Stock Warrants	 	13.00%	 	 	5/1/13	 	 	 	5,000,000
68,658	 	 	 	5,000,000
68,658	 	
XIOtech, Inc.
6455 Flying Cloud Drive
Eden Prairie, MN 55344	 	Technology — Data Storage	 	Term Loan
Preferred Stock Warrants	 	12.50%	 	 	8/1/11	 	 	 	4,510,984
22,045	 	 	 	4,510,984
80,544	 	
Xoft, Inc.
345 Potrero Avenue
Sunnyvale, CA 94085	 	Life Science — Medical Device	 	Revolving Loan

Preferred Stock Warrants	 	11.25%
(Prime + 4.25)%	 	 	11/15/10	 	 	 	348,535

13,265	 	 	 	348,535

50,906	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments	 	 	 	 	 	 	 	 	 	 	 	$	114,209,898	 	 	$	114,263,436	 	

 
 	 	 	
(1)	 	Debt and warrant investments have been pledged as collateral under the Credit Facility.	
(2)	 	All investments are less than 5% ownership of the class and ownership of the portfolio company.	
(3)	 	All interest is payable in cash due monthly in arrears, unless otherwise indicated and applies only to our debt investments. Amount is the annual interest rate on the debt investment and does not include any additional fees related to the investment such as commitment fees or prepayment fees. The majority of the debt investments are at fixed rates for the term of the loan. For each debt investment we have provided the current interest rate in effect as of December 31, 2009. For variable rate debt investments we have also provided the reference index plus the applicable spread which resets monthly.	
(4)	 	Portfolio company is a public company.	
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SENIOR SECURITIES
 
Information about our senior securities is shown in the following table as of June 30, 2010, December 31, 2009 and December 31, 2008. The information contained in the table for the years ended December 31, 2009 and 2008 has been derived from our financial statements which have been audited by McGladrey & Pullen, LLP and the information contained in the table in respect of June 30, 2010 has been derived from unaudited financial data. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Borrowings” for more detailed information regarding the senior securities.

 	 	Total Amount
	 	 	 	 	
 	 	Outstanding
	 	 	Average
	 	
 	 	Exclusive of
	 	 	Market
	 	
 	 	Treasury
	 	 	Value
	 	
Class and Year	 	Securities(1)	 	 	per Unit(2)	 	
 	 	(dollar amounts in millions)	 	
 	 	 	 	 	 	 	 	 	
Revolving Credit Facility with WestLB AG	 	 	 	 	 	 	 	 	
2010 (as of June 30, 2010)	 	$	91.3	 	 	 	N/A	 	
2009	 	$	64.2	 	 	 	N/A	 	
2008	 	$	63.7	 	 	 	N/A	 	

 	 	 	
(1)	 	Total amount of senior securities outstanding at the end of the period presented.	
(2)	 	Not applicable because senior securities are not registered for public trading.	

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MANAGEMENT
 
Our business and affairs will be managed under the direction of our board of directors. Our board of directors currently consists of three members. Prior to the completion of this offering, and as of the date we elect to be regulated as a business development company, we intend to elect additional directors, and following this offering our board of directors will consist of seven members, four of whom are not “interested persons” of our Company or of our Advisor as defined in Section 2(a)(19) of the 1940 Act and are “independent” as determined by our board of directors, consistent with the rules of the NASDAQ Global Market. We refer to these individuals as our “independent directors.” Our board of directors elects our officers, who serve at the discretion of the board of directors.
 
Board of Directors and Executive Officers
 
Under our certificate of incorporation, to be effective prior to the completion of this offering, our directors will be divided into three classes. Each class of directors will hold office for a three-year term. However, the initial members of the three classes will have initial terms of one, two and three years, respectively. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. This classification of our board of directors may have the effect of delaying or preventing a change in control of our management. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualifies. Our certificate of incorporation, to be effective prior to the completion of this offering, will permit the board of directors to elect directors to fill vacancies that are created either through an increase in the number of directors or due to the resignation, removal or death of any director.
 
Directors
 
Information regarding our board of directors is set forth below. We have divided the directors into two groups — independent directors and interested directors. Interested directors are “interested persons” of the company as defined in Section 2(a)(19) of the 1940 Act.

 	 	 	 	 	 	 	Director
	 	 	Expiration
	 	
Interested Directors	 	Age	 	 	Position	 	Since	 	 	of Term	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Robert D. Pomeroy, Jr.(1)	 	 	59	 	 	Chief Executive Officer and Chairman
of the Board of Directors	 	 	2010	 	 	 	2013	 	
Gerald A. Michaud(1)	 	 	57	 	 	President and Director	 	 	2010	 	 	 	2012	 	
David P. Swanson(2)	 	 	36	 	 	Director	 	 	2010	 	 	 	2011	 	

 	 	 	
(1)	 	Interested person of the Company due to his position as an officer of the Company.	
(2)	 	Mr. Swanson is an interested person of the Company due to his position as Partner of Compass Group Management LLC, which we refer to as “The Compass Group.”	

 	 	 	 	 	 	 	Director
	 	 	Expiration
	 	
Independent Directors	 	Age	 	 	Position	 	Since	 	 	of Term	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
James J. Bottiglieri	 	 	54	 	 	Director	 	 	2010	 	 	 	2011	 	
Edmund V. Mahoney	 	 	60	 	 	Director	 	 	2010	 	 	 	2012	 	
Brett N. Silvers	 	 	55	 	 	Director	 	 	2010	 	 	 	2012	 	
Christopher B. Woodward	 	 	61	 	 	Lead Independent Director	 	 	2010	 	 	 	2013	 	
 
The address for each of Mr. Pomeroy and Mr. Michaud and each of the independent directors is Horizon Technology Finance Management LLC, 76 Batterson Park Road, Farmington, Connecticut 06032. The address for Mr. Swanson is Compass Group Management LLC, 61 Wilton Road, 2nd Floor, Westport, Connecticut 06880.
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Executive Officers Who Are Not Directors
 
Information regarding our executive officers who are not directors is as follows:

Name	 	Age	 	 	Positions	
 	 	 	 	 	 	 	
Christopher M. Mathieu	 	 	45	 	 	Senior Vice President, Chief Financial Officer and Treasurer	
John C. Bombara	 	 	46	 	 	Senior Vice President, General Counsel, Chief Compliance
Officer and Secretary	
Daniel S. Devorsetz	 	 	39	 	 	Senior Vice President and Chief Credit Officer	
 
The address for each executive officer is Horizon Technology Finance Management LLC, 76 Batterson Park Road, Farmington, Connecticut 06032.
 
Biographical Information
 
Interested Directors
 
Robert D. Pomeroy, Jr., Chief Executive Officer and Chairman of the Board of Directors.   Mr. Pomeroy co-founded our Advisor in May 2003 and has been a managing member of our Advisor and its Chief Executive Officer since its inception. Mr. Pomeroy was President of GATX Ventures, Inc. (a subsidiary of GATX Corporation engaged in the venture lending business) from July 2000 to April 2003, with full profit and loss responsibility including managing a staff of 39 and chairing the investment committee with credit authority. GATX Ventures, Inc. had total assets of over $270 million. Before joining GATX Ventures in July 2000, Mr. Pomeroy was Executive Vice President of Transamerica Business Credit (a subsidiary of Transamerica Corporation engaged in the venture lending business) and a co-founder of its Transamerica Technology Finance division. Mr. Pomeroy was the general manager of Transamerica Technology Finance from September 1996 to July 2000, with full profit and loss responsibility, credit authority and responsibility for a staff of 50 and over $480 million in assets. Prior to co-founding Transamerica Technology Finance in September 1996, Mr. Pomeroy served from January 1989 to August 1996 as Senior Vice President and chaired the investment committee of Financing for Science International, Inc., a publicly traded venture financing and healthcare leasing company that was acquired by Finova Capital Corporation in August 1996. Mr. Pomeroy started his career with Crocker Bank in 1974 and has over 35 years of diversified lending and leasing experience. Mr. Pomeroy earned both a Master of Business Administration and a Bachelor of Science degree from the University of California at Berkeley.
 
Gerald A. Michaud, President and Director.  Mr. Michaud co-founded our Advisor in May 2003 and has been a managing member of our Advisor and its President since its inception. From July 2000 to May 2003, Mr. Michaud was Senior Vice President of GATX Ventures, Inc. and its senior business development executive. From September 1996 to July 2000, Mr. Michaud was Senior Vice President of Transamerica Business Credit and a co-founder of its Transamerica Technology Finance division. Mr. Michaud was the senior business development executive for Transamerica Technology Finance with oversight of more than $700 million in loans funded. From May 1993 to September 1996, Mr. Michaud served as a Vice President of Financing for Science International, Inc. Prior to 1993, Mr. Michaud founded and served as President of Venture Leasing and Capital. Mr. Michaud attended Northeastern University, Rutgers University and the University of Phoenix, completed a commercial credit training program with Shawmut Bank and has taken executive courses at Harvard Business School.
 
David P. Swanson, Director.  Mr. Swanson has been a partner in The Compass Group since December 2005 and has been with The Compass Group and its affiliates since August 2001, serving as a Vice President from August 2001 to December 2003 and a Principal from December 2003 to December 2005. He is a member of the board of directors of AFM Holding Corporation and was previously a member of the board of directors of Crosman Acquisition Corporation and WorldBusiness Capital, Inc. From August 1996 to July 1998, Mr. Swanson was with Goldman Sachs in the Financial Institutions and Distressed Debt practices. Mr. Swanson is a graduate of the Harvard Business School MBA program and also holds a B.A. in Economics from the University of Chicago, where he was elected Phi Beta Kappa.
 
Independent Directors
 
James J. Bottiglieri, Director.  Mr. Bottiglieri has served as a director of Compass Diversified Holdings, Inc. (“CODI”) since December 2005, as well as its chief financial officer since its inception in November 2005.
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Mr. Bottiglieri has also been an executive vice president of CODI’s external manager since 2005. Previously, Mr. Bottiglieri was the senior vice president/controller of WebMD Corporation. Prior to that, Mr. Bottiglieri was with Star Gas Corporation and a predecessor firm to KPMG LLP. Mr. Bottiglieri is a graduate of Pace University. Mr. Bottiglieri serves as a director for a majority of CODI’s subsidiary companies.
 
Edmund V. Mahoney, Director.  Mr. Mahoney is Vice President, Investments (Chief Investment Officer) of Vantis Life Insurance Company and is responsible for all of its investment and portfolio management activities. Prior to joining Vantis Life in 2009, Mr. Mahoney was Senior Vice President, Compliance of Hartford Investment Management Company, an investment adviser registered with the U.S. Securities and Exchange Commission with nearly $150 billion of assets under management from 1994 through 2009. From 1986 through 1994, Mr. Mahoney was Assistant Vice President and Assistant Treasurer of Aetna Life and Casualty Company, responsible for international finance, foreign exchange risk management and leasing activities. From 1984 through 1986, Mr. Mahoney was the Director, Cash Management Consulting for AETNA Life and Casualty Company, and from 1979 through 1984, Mr. Mahoney was assistant treasurer of a subsidiary of AETNA Life and Casualty Company, Urban Investment and Development Company, a real estate development and management company located in Chicago, Illinois, responsible for the company’s risk management, commercial paper and construction loan programs. Mr. Mahoney earned a Bachelor of Arts degree from Colby College, a Master of Business Administration (with distinction) from Babson College and took real estate finance related post graduate courses at The Wharton School of the University of Pennsylvania.
 
Brett N. Silvers, Director.  Mr. Silvers has been the President and Chief Executive Officer of WorldBusiness Capital, Inc. since he founded it in 2003. He was previously the Chairman and Chief Executive Officer of First International Bancorp, Inc. (NASDAQ: FNCE) for 13 years, during which time he led the bank’s expansion, successful IPO, and sale to a Fortune 100 Company. Mr. Silvers currently serves on the Industry Trade Advisory Committee on Small and Minority Business of the U.S. Department of Commerce/Office of the U.S. Trade Representative. He has also served on the Board of Regents of University of Hartford, the Board of Directors of the Private Export Funding Corporation, the New England Advisory Council of the Federal Reserve Bank of Boston, and the Advisory Committee of the Export-Import Bank of the United States. Mr. Silvers received his Bachelor of Arts in Political Science from Yale University and Master of Arts in Law and Diplomacy from The Fletcher School, Tufts University.
 
Christopher B. Woodward, Lead Independent Director.  Mr. Woodward is a private investor and corporate finance-business advisor. He has previously held several domestic and global management positions as a Director, Deputy Chief Executive Officer and acting Chief Financial Officer with Canterbury of New Zealand from 2000 through 2009, as Vice President-Corporate Finance with Montgomery Securities and its predecessors from 1983 through 1987 and as a senior finance and management executive with various other large and small public and private enterprises. Mr. Woodward began his career with Coopers & Lybrand (a predecessor firm to PricewaterhouseCoopers) where he was a Certified Public Accountant engaged in providing audit, tax and financial advisory services to various sized public and private companies across a number of industries from 1973 through 1980. During such time he was involved in that firm’s early Silicon Valley practice as it assisted emerging, venture-backed growth companies. Mr. Woodward earned both Bachelor of Science and Master in Business Administration degrees from the Haas School at the University of California, Berkeley.
 
Executive Officers who are not Directors
 
Christopher M. Mathieu, Senior Vice President, Chief Financial Officer and Treasurer.  Mr. Mathieu is an original member of the team that founded our Advisor in May 2003 and its Chief Financial Officer since inception. Mr. Mathieu has been involved in the accounting, finance and venture debt industries for more than 22 years. From July 2000 to May 2003, Mr. Mathieu was Vice President — Life Sciences of GATX Ventures, Inc. and the primary business development officer for the life science sector. From September 1996 to July 2000, Mr. Mathieu was Vice President — Life Sciences of Transamerica Business Credit’s Technology Finance division where, in addition to co-developing and implementing the business plan used to form the division, he was the primary business development officer responsible for the life science sector and was directly responsible for more than $200 million in loan originations. From March 1993 to September 1996, Mr. Mathieu was a Vice President, Finance at Financing for Science International, Inc. Mr. Mathieu was most recently a manager with the financial services group of KPMG
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working with both public and private banks and commercial finance companies. Mr. Mathieu graduated with honors from Western New England College with a Bachelor of Science in Business Administration degree in accounting and is a Certified Public Accountant, chartered in the State of Connecticut.
 
John C. Bombara, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary.   Mr. Bombara is an original member of the team that founded our Advisor in May 2003 and has been its Senior Vice President, General Counsel and Chief Compliance Officer since our Advisor’s inception. Mr. Bombara handles all legal functions for our Advisor, including negotiating and documenting most of its investments. Mr. Bombara has more than 19 years of experience providing legal services to financial institutions and other entities and individuals. Prior to joining our company, Mr. Bombara served as in-house counsel for GATX Ventures, Inc. from December 2000 to May 2003 where he directed the legal operations of the GATX Ventures’ east coast office in closing and managing its portfolio of debt and equity investments in technology and life science companies throughout the United States. Mr. Bombara also represented GATX Corporation’s other venture lending units in Canada and Europe. In addition, Mr. Bombara was responsible for assisting and advising senior management, credit analysts and marketing directors with respect to appropriate deal structures, market trends, risk management, and compliance with corporate policies and worked with co-participant’s business personnel and counsel in facilitating and coordinating joint investments. Prior to joining GATX, Mr. Bombara was a partner at the business law firm of Pepe & Hazard, LLP. Mr. Bombara received his Bachelor of Arts degree from Colgate University and his Juris Doctor degree from Cornell Law School.
 
Daniel S. Devorsetz, Senior Vice President and Chief Credit Officer.  Mr. Devorsetz joined our Advisor in October 2004 and has been its Senior Vice President and the Chief Credit Officer since such time. He is responsible for underwriting and portfolio management. Mr. Devorsetz has more than 10 years of financial services and lending experience, including spending the past nine years in the venture lending industry. Prior to joining the team, from May 2003 to October 2004, Mr. Devorsetz was a Vice President in General Electric Capital Corporation’s Life Science Finance Group, where he was primarily responsible for the underwriting and portfolio management of debt and equity investments to venture capital-backed life science companies. Prior to that, from December 2000 to May 2003, Mr. Devorsetz was a Credit Manager at GATX Ventures, Inc. concentrating on the high tech and software industries. He was also a member of GATX’s international credit committee. From July 1999 to December 2000, Mr. Devorsetz was a Vice President and Director of Analysis for Student Loans with Citigroup. Mr. Devorsetz’s previous experience includes tenures in private placement investment banking and securitizations at Advest, Inc. and Ironwood Capital. Mr. Devorsetz received his Bachelor of Science degree from Cornell University.
 
Committees of the Board of Directors
 
Prior to the completion of this offering, our board of directors will have the following board committees:
 
Audit Committee.  The initial members of the audit committee will be James J. Bottiglieri, Brett N. Silvers and Christopher B. Woodward, each of whom will be independent for purposes of the 1940 Act and The NASDAQ Global Market corporate governance listing standards. James J. Bottiglieri will serve as the chairman of the audit committee and will be an “audit committee financial expert” as defined under the SEC rules. The audit committee will operate pursuant to a written charter approved by our board of directors that sets forth the responsibilities of the audit committee. The audit committee will be responsible for selecting our independent accountants, reviewing the plans, scope and results of the audit engagement with our independent accountants, approving professional services provided by our independent accountants, reviewing the independence of our independent accountants and reviewing the adequacy of our internal accounting controls.
 
Nominating and Corporate Governance Committee.  The initial members of the nominating and corporate governance committee will be James J. Bottiglieri, Brett N. Silvers and Edmund V. Mahoney, each of whom will be independent for purposes of the 1940 Act and The NASDAQ Global Market corporate governance listing standards. Edmund V. Mahoney will serve as the chairman of the nominating and corporate governance committee. The nominating and corporate governance committee will operate pursuant to a written charter approved by our board of directors. The nominating and corporate governance committee will be responsible for identifying, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on our board of directors or a committee of the board, developing and recommending to the board of directors a set of corporate governance
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principles and overseeing the evaluation of the board of directors and our management. Our procedures for stockholder nominees for director are described under “Description of Capital Stock — Anti-takeover Effects of Provisions of Our Certificate of Incorporation, Bylaws, Delaware Law and Other Arrangements.”
 
Compensation Committee.  We do not have a compensation committee because our executive officers do not receive any direct compensation from us. Decisions regarding executive compensation, to the extent they arise, will be made by the independent directors on our board.
 
Compensation of Directors
 
As compensation for serving on our board of directors, each of our independent directors will receive an annual fee of $35,000. Each member of the audit committee will be paid an annual fee of $7,500 and each member of each other committee will be paid an annual fee of $5,000. In addition, the chairman of the audit committee receives an additional annual fee of $10,000 and each chairman of any other committee receives an additional annual fee of $7,500 for their additional services, if any, in this capacities. Our lead independent director will also be paid an annual fee of $10,000. We will reimburse all our directors for their reasonable out-of-pocket expenses incurred in attending board and committee meetings. No compensation is expected to be paid to directors, who are “interested persons” of the Company, as such term is defined in the 1940 Act.
 
Leadership Structure of the Board of Directors and its Role in Risk Oversight
 
Our Chief Executive Officer, Robert D. Pomeroy, Jr., is chairman of our board of directors and an “interested person” under Section 2(a)(19) of the 1940 Act. Christopher B. Woodward is our lead independent director. Under our bylaws, our board will not be required to have an independent chairman. Many significant corporate governance duties of our board of directors will be executed by committees of independent directors, each of which has an independent chairman. We believe that it is in the best interests of our stockholders for Mr. Pomeroy to lead the board because of his broad experience. See “— Biographical Information — Interested Directors” for a description of Mr. Pomeroy’s experience. As a co-founder of our Advisor, Mr. Pomeroy has demonstrated a track record of achievement on strategic and operating aspects of our business. While we expect that our board of directors will regularly evaluate alternative structures, we believe that, as a business development company, it is appropriate for one of our co-founders, Chief Executive Officer and a member of our Advisor’s investment committee to perform the functions of chairman of the board, including leading discussions of strategic issues we expect to face. We believe the current structure of our board of directors will provide appropriate guidance and oversight while also enabling ample opportunity for direct communication and interaction between management and the board of directors.
 
There are a number of significant risks facing us which are described under the heading “Risk Factors” included in this prospectus. We expect that our board of directors will use its judgment to create and maintain policies and practices designed to limit or manage the risks we face, including: (1) the establishment of board-approved policies and procedures designed serve our interests, (2) the application of these policies uniformly to directors, management and third-party service providers, (3) the establishment of independent board committees with clearly defined risk oversight functions and (4) review and analysis by the board of reports by management and certain third-party service providers. Accordingly, our board of directors has approved a Code of Ethics to promote ethical conduct and prohibit certain transactions that could pose significant risks to us. Our board of directors has established a related party transaction review policy, under which it monitors the risks related to certain transactions that present a conflict of interest on a quarterly basis. Our board of directors has also established and approved an investment valuation process to manage risks relating to the valuations of our investments and to ensure that our financial statements appropriately reflect the performance of our portfolio of assets. Additionally, through the delegated authority of our board of directors, the audit committee has primary oversight over risks relating to our internal controls over financial reporting and audit-related risks, while the nominating and corporate governance committee has primary oversight over risks relating to corporate governance and oversees the evaluation of our board of directors and our management. Under this oversight structure, our management team manages the risks facing us in our day-to-day operations. We caution you, however, that although our board of directors believes it has established an effective system of oversight, no risk management system can eliminate risks or ensure that particular events do not adversely affect our business.
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Directors Qualifications and Review of Director Nominees
 
Our nominating and corporate governance committee of our board of directors will make recommendations to our board of directors regarding the size and composition of our board of directors. The nominating and corporate governance committee will annually review with our board of directors the composition of our board of directors, as a whole, and recommend, if necessary, measures to be taken so that our board of directors reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for our board of directors, as a whole, and contains at least the minimum number of independent directors required by applicable laws and regulations. The nominating and corporate governance committee will be responsible for ensuring that the composition of the members of our board of directors accurately reflects the needs of our business and, in furtherance of this goal, proposing the addition of members and the necessary resignation of members for purposes of obtaining the appropriate members and skills. Our directors should possess such attributes and experience as are necessary to provide a broad range of personal characteristics including diversity, management skills, financial skills and technological and business experience. Our directors should also be able to commit the requisite time for preparation and attendance at regularly scheduled board of directors and committee meetings, as well as be able to participate in other matters necessary to ensure good corporate governance is practiced.
 
In evaluating a director candidate, the nominating and corporate governance committee will consider factors that are in our best interests and our stockholders’ best interests, including the knowledge, experience, integrity and judgment of each candidate; the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which our board of directors desires to have represented; each candidate’s ability to devote sufficient time and effort to his or her duties as a director; independence and willingness to consider all strategic proposals; any other criteria established by our board of directors and any core competencies or technical expertise necessary to staff our board of directors’ committees. In addition, the nominating and corporate governance committee will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skills and expertise that are likely to enhance our board of directors’ ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of committees of our board of directors to fulfill their duties.
 
In connection with director nominations, the nominating and corporate governance committee may also consider the nominees’ roles in (i) overseeing our efforts in complying with its SEC disclosure requirements, (ii) assisting in improving our internal controls and disclosure controls, (iii) assisting with our strategic plan, (iv) overseeing efforts to ensure our financial products meet all applicable laws and regulations, (v) overseeing the development of new products to meet the needs of a changing business environment, and (vi) implementing our strategic plan. In addition, the nominating and corporate governance committee may consider self-and peer-evaluations provided by each current director, to determine, among other things, that the directors work well together and operate together effectively.
 
In addition to fulfilling the above criteria, four of the seven directors named above are considered independent under NASDAQ rules (Mr. Pomeroy, Mr. Michaud and Mr. Swanson being the exception as Mr. Pomeroy and Mr. Michaud are employees of the Company and Mr. Swanson is a partner of an affiliate of the selling shareholder in this offering and such affiliate will remain a significant shareholder after the completion of the Exchange Transaction), and the nominating and corporate governance committee believes that all seven nominees are independent of the influence of any particular stockholder or group of stockholders whose interests may diverge from the interests of our stockholders as a whole.
 
Each director brings a strong and unique background and set of skills to our board of directors, giving our board of directors, as a whole, competence and experience in a wide variety of areas, including corporate governance and board service, executive management, finance, private equity, workout and turnaround situations, manufacturing and marketing. Set forth below are our conclusions with regard to our directors.
 
Mr. Pomeroy has more than 35 years of experience in diversified lending and leasing, including positions in sales, marketing, and senior management. He has held the positions as chief executive officer or general manager of each organization which he has led since 1996. His responsibilities have included: accountability for the overall profit and loss of the organization, credit authority and credit committee oversight, strategic planning, human resource oversight including hiring, termination and compensation, reporting compliance for his business unit, investor relations, fund raising and all aspect of corporate governance. Mr. Pomeroy founded and has operated our
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Advisor, a Technology Lending management company. Prior to founding our Advisor, Mr. Pomeroy was the Senior Vice President of Financing for Science International, Inc., Executive Vice President of Transamerica Business Credit and the General Manager of its Technology Finance Division and President of GATX Ventures, Inc.. This experience has provided him with the extensive judgment, experience, skills and knowledge to make a significant contribution as our Chairman of our board of directors’ and supporting its ability to govern our affairs and business.
 
Mr. Michaud has been President of our Advisor since its formation. He has extensive knowledge and expertise in venture lending and has developed, implemented and executed on marketing strategies and products targeted at the venture backed technology and life science markets for a period of over 20 years. In addition he has extensive knowledge in the formation of compensation plans for key employees involved in the marketing of venture loans. He is a member of our Advisor’s Credit Committee responsible for approving all investments made by the company and oversight of our portfolio. He has held senior management positions with several Technology Lending organizations within public companies, including Transamerica Business Credit and GATX Ventures, Inc. As senior vice president and senior business development officer at Transamerica, he was responsible for more than $700 million in loan transactions. This experience, particularly with respect to marketing and business development, has provided Mr. Michaud with the judgment, knowledge, experience, skills and expertise that are likely to enhance our board of directors’ ability to manage and direct our affairs.
 
Mr. Swanson is a partner in The Compass Group and currently serves on the board of directors of a privately held company. With additional experience and knowledge gained from other board positions on various committees on private portfolio companies, he has a broad base of experience and skills to bring to our board. Mr. Swanson has gained extensive experience as a partner with The Compass Group in evaluating and structuring transactions, completing due diligence, executing and closing on acquisitions and financings of operating companies as well as taking privately held companies public. Prior to The Compass Group, he gained experience in investment banking, including capital raising and business strategy and execution. Mr. Swanson will provide our board of directors with expertise in business and corporate governance matters and will assist the board in its ability to manage and direct our affairs.
 
Mr. Bottiglieri brings to our board of directors substantial experience in identifying, managing and resolving accounting, tax and other financial issues often encountered by public companies through his positions as the chief financial officer and a director of CODI, as well as a director for several of CODI’s subsidiary companies, and as the senior vice president/controller of WebMD. In addition, as the chief financial officer and director of a public company, CODI, Mr. Bottiglieri has developed an extensive understanding of the various periodic reporting requirements and corporate governance compliance matters that will assist the board in managing and directing our affairs. This experience, particularly with respect to the areas of accounting and corporate governance, will provide our board of directors with expertise that will assist the board in its ability to manage and direct our affairs.
 
Mr. Mahoney brings to our board of directors pertinent experience in portfolio management, as well as in-depth knowledge of investment advisor compliance, funds management, and performance measurement and pricing of investments. In addition, through his past experiences he has unique knowledge of international finance, as well as risk management strategies for foreign exchange and property and casualty operations. This vast experience, particularly in the areas of business, risk management and compliance matters that affect investment companies, will enhance our board’s ability to manage and direct our affairs.
 
Mr. Silvers is a former chief executive officer and director of a public company and FDIC-insured bank. He brings to our board of directors extensive knowledge of domestic lending to small and midsize businesses. From his experience as the current chief executive officer of a commercial finance company, Mr. Silvers will provide the Board with specialized expertise in U.S. government guaranteed lending. His government and regulatory experience, garnered through his roles as a member of important advisory committees, councils and boards of directors relevant to our business, complements the board’s oversight of our company and will enhance its ability to manage and direct our affairs.
 
Mr. Woodward brings to our board of directors a deep understanding of corporate finance, including experience with private placements, public offerings, venture capital investing, international management and financial advising, and restructuring. Additionally, as a practicing CPA with a leading firm, Mr. Woodward gained extensive accounting and audit experience. Mr. Woodward has the financial and accounting expertise necessary to enhance the Board’s oversight of our company and its ability to manage and direct our affairs.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Our Advisor may in the future manage investment funds with investment objectives similar to ours. Accordingly, we may not be given the opportunity to participate in certain investments made by such investment funds. However, our Advisor in these situations intends to allocate investment opportunities in a fair and equitable manner consistent with our investment objectives and strategies so that we are not disadvantaged in relation to any other investment fund.
 
HTFM, our Advisor and Administrator, is privately owned by Horizon Technology Finance, LLC, which we refer to as “HTF,” and Horizon Anchor Holdings, LLC, which we refer to as “HAH.” HTF owns 60% of the outstanding equity interests of our Advisor and HAH owns 40%. HTF was formed in 2003 and is owned equally by Robert D. Pomeroy, Jr., CEO of our Advisor, and Gerald A. Michaud, President of our Advisor. HTF is the predecessor to our Advisor. In addition to originating and managing loans for Compass Horizon, our Advisor has originated and managed loans for three other funds, Horizon Technology Funding Company II LLC, Horizon Technology Funding Company III LLC and Horizon Technology Funding Company V LLC, originating loans in an aggregate original principal amount of $258 million, $177 million and $65 million, respectively, and achieving fund returns since inception after fees and expenses and before taxes as of March 31, 2010 of 12.3%, 11.4%, and 12.3%, respectively. In March 2008, in connection with the formation and capitalization of Compass Horizon, HTF and HAH formed our Advisor. HTF’s contracts, service agreements, employees and other assets were transferred to our Advisor to continue to externally manage all prior fund investments and to externally manage the new Compass Horizon organization.
 
David P. Swanson, a partner in The Compass Group, and one of the interested directors on our board of directors, is an owner in HAH. The remaining ownership of HAH is held by individuals who are affiliated with and employees of The Compass Group.
 
In connection with the formation of Compass Horizon, HAH became a minority equity owner of our Advisor. As owners, the principals of HAH, who are primarily employees of The Compass Group, play a beneficial supporting role to our Advisor. We expect to continue to benefit from our Advisor’s relationship with The Compass Group. Since its establishment, The Compass Group, together with its affiliates, has deployed approximately $1 billion in debt and equity investments, completing acquisitions of more than 20 businesses and numerous add-on transactions. In addition to its other activities, The Compass Group currently manages Compass Diversified Holdings (NASDAQ: CODI), which was formed to acquire and manage a diversified group of small and middle-market businesses headquartered in North America.
 
Prior to the completion of the offering, Compass Horizon intends to make the Pre-IPO Distribution to CHP and after the pre-IPO Distribution and immediately prior to the completion of this offering, the Compass Owners will effect the Share Exchange. Concurrent with this offering, CHP will offer a portion of the shares of our common stock that it receives in the Share Exchange. See “The Exchange Transaction” for a more detailed description of the Pre-IPO Distribution, the Share Exchange and CHP’s concurrent offering of shares of our common stock.
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OUR ADVISOR
 
HTFM will serve as our investment advisor pursuant to an Investment Advisory and Management Agreement. Our Advisor is registered as an investment adviser under the Investment Advisers Act of 1940. Subject to the overall supervision of our board of directors, our Advisor will manage the day-to-day operations of, and provide investment advisory and management services to us.
 
Portfolio Management
 
The management of our investment portfolio will be the responsibility of our Advisor’s executive officers and its investment committee. The Investment Committee currently consists of Robert D. Pomeroy, Jr., CEO of our Advisor, Gerald A. Michaud, President of our Advisor, Daniel S. Devorsetz, SVP and Chief Credit Officer of our Advisor, and Kevin T. Walsh, Vice President and Senior Credit Officer of our Advisor. For more information regarding the business experiences of Messrs. Pomeroy, Michaud and Devorsetz, see “Management — Biographical Information — Interested Directors and — Executive Officers Who Are Not Directors.”
 
Below is the biography for the portfolio manager whose biography has not been included elsewhere in this prospectus.
 
Kevin T. Walsh, Vice President, Senior Credit Officer of Our Advisor.  Mr. Walsh has been the Senior Credit Officer of our Advisor since joining our Advisor in March 2006. Mr. Walsh is responsible for the underwriting of initial investments and the ongoing review of the portfolio accounts. Mr. Walsh has over 15 years of experience working with early stage, venture backed technology and life science companies. Prior to joining our Advisor in March 2006, Mr. Walsh was a Senior Vice President and Market Manager for Bridge Bank’s Technology Banking and Capital Finance Divisions from September 2004 to March 2006 where he was responsible for new business generation as well as risk management activities within the Bank’s asset-based lending sector. Prior to Bridge Bank, Mr. Walsh was a Vice President and Relationship Manager for Silicon Valley Bank in the Communication & Electronics Practice from September 1994 to June 2004. Mr. Walsh is a graduate of the California State University at Hayward, where he earned a Bachelor of Science degree in Business Administration.
 
The compensation of the members of the senior management committee of our Advisor are paid by our Advisor and includes an annual base salary, in certain cases an annual bonus based on an assessment of short-term and long-term performance and a portion of the incentive fee, if any, paid to our Advisor. In addition, Mr. Pomeroy and Mr. Michaud have equity interests in our Advisor and may receive distributions of profits in respect of those interests.
 
Historical Performance of Our Advisor
 
In addition to originating and managing loan and warrant investments on behalf of Compass Horizon, our Advisor has originated and managed similar investments on behalf of other externally managed private funds for affiliates of two New York-based alternative asset managers. In particular, in March 2004, HTF and an affiliate of one such manager formed and invested in Horizon Technology Funding Company II LLC, which we refer to as “HTF II,” and HTF and affiliates of the other manager formed and invested in Horizon Technology Funding Company III LLC, which we refer to as “HTF III.” HTF II and HTF III co-invested in investments originated by our Advisor in March 2004 until December 2006, after which HTF II was the sole investor until July 2007. In July 2007, Horizon Technology Funding Company V LLC, which we refer to as “HTF V,” was formed by the investor in HTF II and was managed by our Advisor. As of the date of this prospectus, only the Compass Horizon fund is actively making new investments.
 
Including HTF II, HTF III, HTF V and Compass Horizon, our Advisor has made more than 115 loans totaling approximately $700 million in the aggregate since it commenced operations in 2004 while only incurring losses on eight transactions totaling approximately $11 million in the aggregate or a cumulative loss of approximately 1.6% on the original amount loaned. Compass Horizon has not realized any losses (charge-offs) in its loan portfolio on any individual investments since its inception in 2008.
 
The following table is a condensed summary of our Advisor’s historical performance since its inception for all of the funds it has managed other than Compass Horizon. HTF II, HTF III and HTF V were capital call funds that did
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not use leverage and each fund is closed to new investments. Each of these funds had an investment mandate similar to ours as there are no material differences in the objectives, policies and investment strategies between each of these funds and ours. This information is not a guarantee of future performance and is subject to risks, uncertainties and other factors some of which are beyond our Advisor’s control, including market conditions.
 
Average Annual Total Returns
 
Fund Return (after deduction of all fees and expenses(1)) Before Taxes

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Annualized
	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Since
	 	
 	 	Inception
	 	 	Number of
	 	 	Capital
	 	 	1-Year
	 	 	5-Year
	 	 	Inception
	 	
Fund Name(2)	 	Date	 	 	investments(3)	 	 	Invested	 	 	(3/31/09 - 3/31/10)	 	 	(3/31/05 - 3/31/10)	 	 	(through 3/31/10)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
HTF II	 	 	4/21/2004	 	 	 	75	 	 	$	258 million	 	 	 	15.3	%	 	 	13.4	%	 	 	12.3	%	
HTF III	 	 	4/21/2004	 	 	 	60	 	 	$	177 million	 	 	 	13.5	%	 	 	12.8	%	 	 	11.4	%	
HTF V	 	 	7/12/2007	 	 	 	20	 	 	$	65 million	 	 	 	13.6	%	 	 	NA	 	 	 	12.3	%	

Footnotes:
 	 	 	
(1)	 	The fees and expenses for these funds differ from the fees and expenses to be paid by us to our Advisor. See “Fees and Expenses.”	
(2)	 	Horizon Technology Funding Company I and Horizon Technology Funding Company IV were names reserved for investment funds that were never funded and no investments were made by these entities.	
(3)	 	HTF II and HTF III co-invested in transactions during the period March 2004 to December 2006. HTF V and Compass Horizon co-invested in transactions from March 2008 to December 31, 2008.	

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INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENTS
 
Horizon Technology Finance Management LLC serves as our investment advisor and is registered as such under the Advisers Act. Our Advisor manages our day-to-day operations and also provides all administrative services necessary for us to operate.
 
Investment Management Agreement
 
Under the terms of our Investment Management Agreement, which we refer to as the investment management agreement, our Advisor will:

 	• 	determine the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;	
 	 	 	
 	• 	identify, evaluate and negotiate the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and	
 	 	 	
 	• 	close, monitor and administer the investments we make, including the exercise of any voting or consent rights.	
 
Our Advisor’s services under the investment management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.
 
Management Fee
 
Pursuant to our investment management agreement, we will pay our Advisor a fee for investment advisory and management services consisting of a base management fee and an incentive fee.
 
Base Management Fee.  The base management fee will be calculated at an annual rate of 2.00% of our gross assets, payable monthly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage.
 
Incentive Fee.  The incentive fee will have two parts, as follows:
 
The first part will be calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and fees for providing significant managerial assistance or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. The incentive fee with respect to our pre-incentive fee net income will be 20.00% of the amount, if any, by which our pre-incentive fee net investment income for the immediately preceding calendar quarter exceeds a 1.75% (which is 7.00% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, our Advisor receives no incentive fee until our net investment income equals the hurdle rate of 1.75%, but then receives, as a “catch-up,” 100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.1875% in any calendar quarter, our Advisor will receive 20.00% of our pre-incentive fee net investment income as if a hurdle rate did not apply
 
Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment income in excess of the quarterly minimum hurdle rate, we will pay the applicable incentive fee even if
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we have incurred a loss in that quarter due to realized and unrealized capital losses. Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2.00% base management fee. These calculations will be appropriately pro rated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.
 
The following is a graphical representation of the calculation of the income-related portion of the incentive fee:
 
Quarterly Incentive Fee Based on Net Investment Income
Pre-incentive fee net investment income
(expressed as a percentage of the value of net assets)

 
Percentage of pre-incentive fee net investment income allocated to first part of incentive fee
 
The second part of the incentive fee will be determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the terminate date), commencing on December 31, 2010, and will equal 20% of our realized capital gains, if any, on a cumulative basis from the date of our election to be a business development company through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less all previous amounts paid in respect of the capital gain incentive fee provided that the incentive fee determined as of December 31, 2010 will be calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation for the period beginning on the date of our election to be a business development company and ending December 31, 2010.
 
Examples of Incentive Fee Calculation
 
Example 1: Income Related Portion of Incentive Fee for Each Fiscal Quarter
 
Alternative 1
 
Assumptions:
Investment income (including interest, dividends, fees, etc.) = 1.25%
Hurdle rate(1) = 1.75%
Management fee(2) = 0.50%
Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20%
Pre-Incentive Fee Net Investment Income
(investment income − (management fee + other expenses) = 0.55%
 
Pre-Incentive Fee Net Investment Income does not exceed hurdle rate; therefore, there is no income-related incentive fee.
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Alternative 2
 
Assumptions:
Investment income (including interest, dividends, fees, etc.) = 2.80%
Hurdle rate(1) = 1.75%
Management fee(2) = 0.50%
Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20%
Pre-Incentive Fee Net Investment Income
(investment income − (management fee + other expenses) = 2.10%
Incentive fee = 100.00% × Pre-Incentive Fee Net Investment Income (subject to “catch-up”) (4)
= 100.00% × (2.10% − 1.75%)
= 0.35%
 
Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, but does not fully satisfy the “catch-up” provision; therefore, the income related portion of the incentive fee is 0.35%.
 
Alternative 3
 
Assumptions:
Investment income (including interest, dividends, fees, etc.) = 3.00%
Hurdle rate(1) = 1.75%
Management fee(2) = 0.50%
Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20%
Pre-Incentive Fee Net Investment Income
(investment income − (management fee + other expenses) = 2.30%
 
Incentive fee = 100.00% × Pre-Incentive Fee Net Investment Income (subject to “catch-up”) (4)
 
Incentive fee = 100.00% × “catch-up” + (20.00% × (Pre-Incentive Fee Net Investment Income − 2.1875%))
 
Catch up = 2.1875% − 1.75%
= 0.4375%
 
Incentive fee = (100.00% × 0.4375%) + (20.00% × (2.30% − 2.1875%))
= 0.4375% + (20.00% × 0.1125%)
= 0.4375% + 0.0225%
= 0.46%
 
Pre-Incentive Fee Net Investment Income exceeds the hurdle rate, and fully satisfies the “catch-up” provision; therefore, the income related portion of the incentive fee is 0.46%.

(1)	 	Represents 7.00% annualized hurdle rate.	
(2)	 	Represents 2.00% annualized base management fee.	
(3)	 	Excludes organizational and offering expenses.	
(4)	 	The “catch-up” provision is intended to provide our Advisor with an incentive fee of 20.00% on all Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when our net investment income exceeds 2.1875% in any fiscal quarter.	

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Example 2: Capital Gains Portion of Incentive Fee
 
Alternative 1
 
Assumptions:
Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)
 
Year 2: Investment A sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million
 
Year 3: FMV of Investment B determined to be $25 million
 
Year 4: Investment B sold for $31 million
 
The capital gains portion of the incentive fee, if any, would be:
 
Year 1: None (No sales transaction)
 
Year 2: Capital gains incentive fee of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20%)
 
Year 3: None; $5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)
 
Year 4: Capital gains incentive fee of $200,000; $6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains incentive fee taken in Year 2)
 
Alternative 2
 
Assumptions:
Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)
 
Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million
 
Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million
 
Year 4: FMV of Investment B determined to be $35 million
 
Year 5: Investment B sold for $20 million
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The capital gains incentive fee, if any, would be:
 
Year 1: None (no sales transaction)
 
Year 2: $5 million capital gains incentive fee (20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B))
 
Year 3: $1.4 million capital gains incentive fee(1) ($6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million capital gains incentive fee received in Year 2
 
Year 4: None (no sales transaction)
 
Year 5: None ($5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains incentive fee paid in Year 2 and Year 3 (2)
 
The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example.

(1)	 	As illustrated in Year 3 of Alternative 1 above, if we were to be wound up on a date other than its fiscal year end of any year, we may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would be payable if we had been wound up on its fiscal year end of such year.	
(2)	 	As noted above, it is possible that the cumulative aggregate capital gains fee received by the Investment Manager ($6.4 million) is effectively greater than $5 million (20.00% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation ($25 million)).	
 
Payment of our expenses
 
All investment professionals and staff of our Advisor, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of its personnel allocable to such services, will be provided and paid for by our Advisor. We will bear all other costs and expenses of our operations and transactions, including, without limitation, those relating to:

 	• 	our organization;	
 	 	 	
 	• 	calculating our net asset value (including the cost and expenses of any independent valuation firms);	
 	 	 	
 	• 	expenses, including travel expense, incurred by our Advisor or payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;	
 	 	 	
 	• 	interest payable on debt, if any, incurred to finance our investments;	
 	 	 	
 	• 	the costs of this and all future offerings of our common stock and other securities, if any;	
 	 	 	
 	• 	the base management fee and any incentive management fee;	
 	 	 	
 	• 	distributions on our shares;	
 	 	 	
 	• 	administration fees payable under our administration agreement;	
 	 	 	
 	• 	the allocated costs incurred by Advisor as our Administrator in providing managerial assistance to those portfolio companies that request it;	
 	 	 	
 	• 	amounts payable to third parties relating to, or associated with, making investments;	
 	 	 	
 	• 	transfer agent and custodial fees;	
 	 	 	
 	• 	registration fees;	
 	 	 	
 	• 	listing fees;	

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 	• 	fees and expenses associated with marketing efforts;	
 	 	 	
 	• 	taxes;	
 	 	 	
 	• 	independent director fees and expenses;	
 	 	 	
 	• 	brokerage commissions;	
 	 	 	
 	• 	costs of preparing and filing reports or other documents with the SEC;	
 	 	 	
 	• 	the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;	
 	 	 	
 	• 	our allocable portion of the fidelity bond;	
 	 	 	
 	• 	directors and officers/errors and omissions liability insurance, and any other insurance premiums;	
 	 	 	
 	• 	indemnification payments;	
 	 	 	
 	• 	direct costs and expenses of administration, including audit and legal costs; and	
 	 	 	
 	• 	all other expenses incurred by us or the Administrator in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs.	
 
We will reimburse our Advisor for costs and expenses incurred by our Advisor for office space rental, office equipment and utilities allocable to the performance by our Advisor of its duties under the investment management agreement, as well as any costs and expenses incurred by our Advisor relating to any non-investment advisory, administrative or operating services provided by our Advisor to us or in the form of managerial assistance to portfolio companies that request it.
 
From time to time, our Advisor may pay amounts owed by us to third party providers of goods or services. We will subsequently reimburse our Advisor for such amounts paid on our behalf.
 
Generally, our expenses will be expensed as incurred in accordance with GAAP. To the extent we incur costs that should be capitalized and amortized into expense we will also do so in accordance with GAAP, which may include amortizing such amount on a straight line basis over the life of the asset or the life of the services or product being performed or provided.
 
Limitation of liability and indemnification
 
The investment management agreement provides that our Advisor and its officers, managers, partners, agents, employees, controlling persons and any other person or entity affiliated with our Advisor will not be liable to us for any act or omission by it in the supervision or management of our investment activities or for any loss sustained by us except for acts or omissions constituting willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations under the investment management agreement. The investment management agreement also provides for indemnification by us of our Advisor and its officers, managers, partners, agents, employees, controlling persons and any other person or entity affiliated with our Advisor for liabilities incurred by them in connection with their services to us (including any liabilities associated with an action or suit by or in the right of us or our stockholders), but excluding liabilities for acts or omissions constituting willful misfeasance, bad faith or gross negligence or reckless disregard of their duties under the investment management agreement to certain conditions.
 
Board approval of the investment management agreement
 
Our board of directors held an in-person meeting on          , 2010, in order to consider and approve our investment management agreement. In its consideration of the investment management agreement, the board of directors focused on information it had received relating to, among other things: (a) the nature, quality and extent of the advisory and other services to be provided to us by our Advisor; (b) comparative data with respect to advisory fees or similar expenses paid by other business development companies with similar investment objectives; (c) our
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projected operating expenses and expense ratio compared to business development companies with similar investment objectives; (d) any existing and potential sources of indirect income to our Advisor or the Administrator from their relationships with us and the profitability of those relationships; (e) information about the services to be performed and the personnel performing such services under the investment management agreement; (f) the organizational capability and financial condition of our Advisor and its affiliates; (g) our Advisor’s practices regarding the selection and compensation of brokers that may execute our portfolio transactions and the brokers’ provision of brokerage and research services to our Advisor; and (h) the possibility of obtaining similar services from other third party service providers or through an internally managed structure.
 
Based on the information reviewed and the discussions, the board of directors, including a majority of the non-interested directors, concluded that the investment management fee rates are reasonable in relation to the services to be provided.
 
Duration and termination
 
The investment management agreement was approved by our board of directors on          , 2010. Unless terminated earlier as described below, it will continue in effect for a period of 2 years from its effective date. It will remain in effect from year to year thereafter if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. The investment management agreement will automatically terminate in the event of its assignment. The investment management agreement may be terminated by either party without penalty by delivering upon not more than 60 days’ written notice to the other. See “Risk Factors — Risks Related to our Business and Structure — Our Advisor can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, results or operations or financial condition.” We are dependent upon senior management personnel of our Advisor for our future success, and if our Advisor is unable to hire and retain qualified personnel or if our Advisor loses any member of its senior management team, our ability to achieve our investment objective could be significantly harmed.
 
Administration Agreement
 
We have entered into an administration agreement with HTFM, our Administrator, to provide administrative services to us. For providing these services, facilities and personnel, we will reimburse our Administrator for our allocable portion of overhead and other expenses incurred by our Administrator in performing its obligations under the administration agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs.
 
From time to time, our Administrator may pay amounts owed by us to third-party providers of goods or services. We will subsequently reimburse our Administrator for such amounts paid on our behalf.
 
License Agreement
 
We have entered into a license agreement with our Advisor pursuant to which our Advisor has agreed to grant us a non-exclusive, royalty-free right and license to use the service mark “Horizon Technology Finance.” Under this agreement, we have a right to use the “Horizon Technology Finance” service mark for so long as the investment management agreement with our Advisor is in effect. Other than with respect to this limited license, we will have no legal right to the “Horizon Technology Finance” service mark.
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CONTROL PERSONS, PRINCIPAL STOCKHOLDERS AND THE SELLING STOCKHOLDER
 
Following the Share Exchange and immediately prior to the completion of this offering, we will have shares of common stock outstanding, all of which will be owned beneficially and of record by the stockholders listed in the table below. The following table sets forth certain information with respect to the beneficial and record ownership of our common stock immediately prior to the completion of this offering (after giving effect to the Share Exchange) and as adjusted to reflect the sale of shares of common stock offered by this prospectus by:

 	• 	each person known to us to own beneficially and of record more than 5% of the outstanding shares of our common stock;	
 	 	 	
 	• 	each of our directors and each of our executive officers;	
 	 	 	
 	• 	all of our directors and executive officers as a group; and	
 	 	 	
 	• 	the selling stockholder.	

 	 	Shares Owned
	 	 	 	 	 	Shares Owned
	 	
 	 	Beneficially
	 	 	 	 	 	Beneficially
	 	
 	 	and of Record
	 	 	 	 	 	and of Record
	 	
 	 	Immediately Prior
	 	 	Number
	 	 	Immediately After
	 	
 	 	to This Offering	 	 	of Shares
	 	 	This Offering	 	
Name of Beneficial Owner	 	Number	 	 	Percent	 	 	Being Offered	 	 	Number	 	 	Percent(1)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Principal Stockholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Compass Horizon Partners, LP (2)	 	 	 	 	 	 	96.1	%	 	 	 	 	 	 	 	 	 	 	     	%	
HTF-CHF Holdings LLC(3)	 	 	 	 	 	 	3.9	%	 	 	—	 	 	 	 	 	 	 	     	%	
Directors and Executive Officers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Robert D. Pomeroy, Jr.(3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Gerald A. Michaud(3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
David P. Swanson	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
James J. Bottiglieri	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Edmund V. Mahoney	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Brett N. Silvers	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Christopher B. Woodward	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Christopher M. Mathieu(3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
John C. Bombara(3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
Daniel S. Devorsetz(3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	
All officers and directors as a group (10 persons)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

 	 	 	
(1)	 	Assumes the sale of           shares of our common stock by the selling stockholder and the issuance of           shares of our common stock in this offering.	
(2)	 	Concorde Horizon Holdings LP. is the limited partner of Compass Horizon Partners, LP and Navco Management Ltd. is the general partner. Concorde Horizon Holdings LP. and Navco Management Ltd. are controlled by Kattegat Trust, a Bermudian charitable trust, the trustee of which is Kattegat Private Trustees (Bermuda) Limited, a Bermudian trust company with its principal offices at 2 Reid Street, Hamilton HM 11, Bermuda.	
(3)	 	Messrs. Pomeroy, Michaud, Mathieu, Bombara and Devorsetz each own 33%, 33%, 15.5%, 9.3% and 6.2% of HTF-CHF Holdings LLC, respectively. The address for HTF-CHF Holdings LLC is 76 Batterson Park Road, Farmington, Connecticut 06032.	

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The following table sets forth the dollar range of our securities owned by our directors and employees primarily responsible for the day-to-day management of our investment portfolio.

 	 	 	 	 	Aggregate Dollar Range of
	 	
 	 	 	 	 	Equity Securities in all
	 	
 	 	 	 	 	Registered Investment
	 	
 	 	 	 	 	Companies Overseen by
	 	
 	 	Dollar Range of Equity
	 	 	Director in Family of
	 	
Name	 	Securities in the Company(1)	 	 	Investment Companies	 	
 	 	 	 	 	 	 	 	 	
Independent Directors	 	 	 	 	 	 	 	 	
Interested Directors	 	 	 	 	 	 	 	 	
Robert D. Pomeroy, Jr. 	 	 	 	 	 	 	 	 	
Gerald A. Michaud	 	 	 	 	 	 	 	 	
David P. Swanson	 	 	 	 	 	 	 	 	
James J. Bottiglieri	 	 	 	 	 	 	 	 	
Edmund V. Mahoney	 	 	 	 	 	 	 	 	
Brett N. Silvers	 	 	 	 	 	 	 	 	
Christopher B. Woodward	 	 	 	 	 	 	 	 	
Portfolio Management Employees	 	 	 	 	 	 	 	 	
Christopher M. Mathieu	 	 	 	 	 	 	 	 	
John C. Bombara	 	 	 	 	 	 	 	 	
Daniel S. Devorsetz	 	 	 	 	 	 	 	 	

 	 	 	
(1)	 	The dollar range of equity securities beneficially owned in us is based on the assumed initial offering price of our common stock of $      per share (the mid-point of the range set forth on the cover of this prospectus).	

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DETERMINATION OF NET ASSET VALUE
 
The net asset value per share of our outstanding shares of common stock will be determined quarterly by dividing the value of total assets minus liabilities by the total number of shares of common stock outstanding at the date as of which the determination is made. We will conduct the valuation of our assets, pursuant to which our net asset value will be determined, at all times consistent with GAAP and the 1940 Act.
 
In calculating the fair value of our total assets, investments for which market quotations are readily available will be valued at such market quotations, which will generally be obtained from an independent pricing service or one or more broker-dealers or market makers. However, debt investments with remaining maturities within 60 days that are not credit impaired will be valued at cost plus accreted discount, or minus amortized premium, which approximates fair value.
 
We value our investments at fair value which shall be the market value of our investments. We expect that there will not be a readily available market value for many of our portfolio investments, and we will value those debt and equity securities that are not publicly traded or whose market value is not ascertainable, at fair value as determined in good faith by the board of directors in accordance with our valuation policy. Our board of directors will employ an independent third party valuation firms to assist in determining fair value.
 
The types of factors that the board of directors may take into account in determining fair value include: comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the company will consider the pricing indicated by the external event to corroborate the private equity valuation.
 
With respect to investments for which market quotations are not readily available or for which no indicative prices from pricing services or brokers or dealers have been received, our board of directors will undertake a multi-step valuation process each quarter, as described below:

 	• 	the quarterly valuation process will begin with each portfolio company or investment being initially valued by our Advisor’s investment professionals responsible for monitoring the investment;	
 	 	 	
 	• 	preliminary valuation conclusions will then be documented and discussed with our Advisor’s senior management;	
 	 	 	
 	• 	a third-party valuation firm will be engaged by, or on behalf of, our board of directors to conduct independent appraisals of all investments at least once annually after reviewing our Advisor’s preliminary valuations; and	
 	 	 	
 	• 	our board of directors will then discuss the valuations and determine in good faith the fair value of each investment in the portfolio based on the analysis and recommendations of our Advisor and, when determined by our board of directors, an independent valuation firm.	
 
Due to the inherent uncertainty in determining the fair value of investments that do not have a readily observable fair value, and the subjective judgments and estimates involved in those determinations, the fair value determinations by our board of directors, even though determined in good faith, may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
 
Determinations in connection with offerings
 
In connection with certain offerings of shares of our common stock, our board of directors or one of its committees will be required to make the determination that we are not selling shares of our common stock at a price below the then current net asset value of our common stock at the time at which the sale is made. Our board of
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directors or an applicable committee of our board of directors will consider the following factors, among others, in making such determination:

 	• 	the net asset value of our common stock most recently disclosed by us in the most recent periodic report that we filed with the SEC;	
 	 	 	
 	• 	our management’s assessment of whether any material change in the net asset value of our common stock has occurred (including through the realization of gains on the sale of our portfolio securities) during the period beginning on the date of the most recently disclosed net asset value of our common stock and ending two days prior to the date of the sale of our common stock; and	
 	 	 	
 	• 	the magnitude of the difference between (i) the net asset value of our common stock most recently disclosed by us and our management’s assessment of any material change in the net asset value of our common stock since that determination, and (ii) the offering price of the shares of our common stock in the proposed offering.	
 
This determination will not require that we calculate the net asset value of our common stock in connection with each offering of shares of our common stock, but instead it will involve the determination by our board of directors or a committee thereof that we are not selling shares of our common stock at a price below the then current net asset value of our common stock at the time at which the sale is made or otherwise in violation of the 1940 Act.
 
Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price below the then current net asset value of our common stock at the time at which the sale is made or (ii) trigger the undertaking (which we provide in certain registration statements we file with the SEC) to suspend the offering of shares of our common stock pursuant to this prospectus if the net asset value of our common stock fluctuates by certain amounts in certain circumstances until the prospectus is amended, our board of directors will elect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such event or to undertake to determine the net asset value of our common stock within two days prior to any such sale to ensure that such sale will not be below our then current net asset value, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine the net asset value of our common stock to ensure that such undertaking has not been triggered.
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DIVIDEND REINVESTMENT PLAN
 
We have adopted a dividend reinvestment plan that provides for reinvestment of our cash distributions and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our board of directors authorizes, and we declare, a cash distribution, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.
 
No action is required on the part of a registered stockholder to have their cash distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying The Bank of New York Mellon, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share.
 
Those stockholders whose shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
 
We intend to use primarily newly issued shares to implement the plan, whether our shares are trading at a premium or at a discount to net asset value. However, we reserve the right to purchase shares in the open market in connection with our implementation of the plan. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the dividend payable to such stockholder by the market price per share of our common stock at the close of regular trading on The NASDAQ Global Market on the valuation date, which date shall be as close as practicable to the dividend payment date for such dividend. Market price per share on that date will be the closing price for such shares on The NASDAQ Global Market or, if no sale is reported for such day, at the average of their reported bid and asked prices. The number of shares of our common stock to be outstanding after giving effect to payment of the dividend cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium at the time we issue new shares under the plan and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the dividend payable to a stockholder.
 
There will be no brokerage charges or other charges to stockholders who participate in the plan. The plan administrator’s fees under the plan will be paid by us. If a participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a 10¢ per share trading fee from the proceeds.
 
Stockholders who receive distributions in the form of stock are subject to the same federal income tax consequences as are stockholders who elect to receive their dividends in cash. A stockholder’s basis for determining gain or loss upon the sale of stock received in a dividend from us will be equal to the total dollar amount of the dividend payable to the stockholder. Any stock received in a dividend will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account. See “Material U.S. Federal Income Tax Considerations.”
 
Participants may terminate their accounts under the plan by notifying the plan agent via its website at www.bnymellon.com/shareowner/isd, by filling out the transaction request form located at bottom of their statement and sending it to the plan agent at c/o BNY Mellon Shareowner Services, P.O. Box 358035, Pittsburgh, Pennsylvania 15252-8035 or by calling the plan administrator at c/o BNY Mellon Shareowner Services, P.O. Box 358035, Pittsburgh, Pennsylvania 15252-8035.
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The plan may be terminated by us upon notice in writing mailed to each participant. All correspondence concerning the plan should be directed to the plan administrator by mail at          .
 
If you withdraw or the plan is terminated, the plan administrator will continue to hold your shares in book-entry form unless you request that such shares be sold or issued. Upon receipt of your instructions, a certificate for each whole share in your account under the plan will be issued and you will receive a cash payment for any fraction of a share in your account.
 
If you hold your common stock with a brokerage firm that does not participate in the plan, you will not be able to participate in the plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
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DESCRIPTION OF CAPITAL STOCK
 
General
 
The following description does not purport to be complete and is subject to the provisions of our certificate of incorporation and bylaws, forms of which will be filed as exhibits to this registration statement. The descriptions are qualified in their entirety by reference to our certificate of incorporation and bylaws and to applicable law.
 
Under the terms of our certificate of incorporation, our authorized capital stock will consist solely of 100,000,000 shares of common stock, par value $0.001 per share, of which           shares were outstanding as of          , 2010 (after giving effect to the Share Exchange and assuming the mid-point of the range set forth on the cover of this prospectus), and 1,000,000 shares of preferred stock, par value $0.001 per share, of which no shares were outstanding as of             , 2010. There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Our board of directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock without obtaining stockholder approval. As permitted by Delaware law, the board of directors may, without any action by our stockholders, amend our certificate of incorporation from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. Under Delaware law, our stockholders generally are not personally liable for our debts or obligations.
 
Common stock
 
Under the terms of our certificate of incorporation, all shares of our common stock have equal rights as to earnings, assets, dividends and voting. When they are issued, shares of our common stock will be duly authorized, validly issued, fully paid and non-assessable. Distributions may be paid to the holders of our common stock if, as and when declared by our board of directors out of assets legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive ratably our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any series of preferred stock which we may designate and issue in the future. In addition, holders of our common stock may participate in our dividend reinvestment plan.
 
We have applied to have our common stock listed on The NASDAQ Global Market under the ticker symbol “HRZN.”
 
Preferred stock
 
Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. The board has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock. Every issuance of preferred stock will be required to comply with the requirements of the 1940 Act. The 1940 Act limits our flexibility as to certain rights and preferences of the preferred stock that our certificate of incorporation may provide and requires, among other things, that (1) immediately after issuance and before any distribution is made with respect to our common stock, and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if and for so long as dividends on the preferred stock are in arrears by two years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a business
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development company. The features of the preferred stock will be further limited by the requirements applicable to regulated investment companies under the Code. The purpose of authorizing our board to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with providing leverage for our investment program, possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock.
 
Anti-takeover Effects of Provisions of Our Certificate of Incorporation, Bylaws, Delaware Law and Other Arrangements
 
Certain provisions of our certificate of incorporation and bylaws, as summarized below, and applicable provisions of the Delaware General Corporation Law and certain other agreements to which we are a party may make it more difficult for or prevent an unsolicited third party from acquiring control of us or changing our board of directors and management. These provisions may have the effect of deterring hostile takeovers or delaying changes in our control or in our management. These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and in the policies furnished by them and to discourage certain types of transactions that may involve an actual or threatened change in our control. The provisions also are intended to discourage certain tactics that may be used in proxy fights. These provisions, however, could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts.
 
Classified Board; Vacancies; Removal.  The classification of our board of directors and the limitations on removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire us, or of discouraging a third party from acquiring us. Our board of directors will be divided into three classes, with the term of one class expiring at each annual meeting of stockholders. At each annual meeting, one class of directors is elected to a three-year term. This provision could delay for up to two years the replacement of a majority of the board of directors.
 
Our certificate of incorporation provides that, subject to the rights of any holders of preferred stock, any vacancy on the board of directors, however the vacancy occurs, including a vacancy due to an enlargement of the board, may only be filled by vote a majority of the directors then in office.
 
A director may be removed at any time at a meeting called for that purpose, but only for cause and only by the affirmative vote of the holders of at least 75% of the shares then entitled to vote for the election of the respective director.
 
Advance Notice Requirements for Stockholder Proposals and Director Nominations.  Our bylaws provide that with respect to an annual meeting of stockholders, nominations of person for election to the board of directors and the proposal of business to be considered by stockholders may be made only (1) by or at the direction of the board of directors, (2) pursuant to our notice of meeting or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. Nominations of persons for election to the board of directors at a special meeting may be made only (1) by or at the director of the board of directors, or (2) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws. The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform our stockholders and make recommendations about such qualifications or business, as well as to prove a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our board of directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
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Amendments to Certificate of Incorporation and Bylaws.  Delaware’s corporation law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws requires a greater percentage. Our certificate of incorporation permits our board of directors to amend or repeal our bylaws. Our bylaws generally can be amended by approval of at least 66 2 / 3 % of the total number of authorized directors subject to certain exceptions, including provisions relating to the size of our board, and certain actions requiring board approval, which provisions will require the vote of 75% of our board of directors to be amended. The affirmative vote of the holders of at least 66 2 / 3 % of the shares of our capital stock entitled to vote is required to amend or repeal any of the provisions of our bylaws.
 
Calling of Special Meetings by Stockholders.  Our certificate of incorporation and bylaws also provide that special meetings of the stockholders may only be called by our board of directors, Chairman, Chief Executive Officer or President.
 
Section 203 of the Delaware General Corporation Law.  We will be subject to the provisions of Section 203 of the Delaware General Corporation Law once we are a public company. In general, the statute prohibits a publicly held Delaware corporation from engaging in a “business combination” with “interested stockholders” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes certain mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with his affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s voting stock.
 
Approval of Certain Transactions.
 
To convert us to an open-end investment company, to merge or consolidate us with any entity or sell all or substantially all of our assets to any entity in a transaction as a result of which the governing documents of the surviving entity do not contain substantially the same anti-takeover provisions as are provided in our certificate of incorporation, to liquidate and dissolve us other than in connection with a qualifying merger, consolidation or sale of assets or to amend any of the provisions discussed herein, our certificate of incorporation requires the favorable vote of a majority of our continuing directors followed by the favorable vote of the holders of at least 75% of our outstanding shares of each affected class or series of our shares, voting separately as a class or series, unless such amendment has been approved by at the holders of least 80% of the then outstanding shares of our capital stock, voting together as a single class. If approved in the foregoing manner, our conversion to an open-end investment company could not occur until 90 days after the stockholders meeting at which such conversion was approved and would also require at least 30 days prior notice to all stockholders. As part of any such conversion to an open-end investment company, substantially all of our investment policies and strategies and portfolio would have to be modified to assure the degree of portfolio liquidity required for open-end investment companies. In the event of conversion, the common shares would cease to be listed on any national securities exchange or market system. Stockholders of an open-end investment company may require the company to redeem their shares at any time, except in certain circumstances as authorized by or under the 1940 Act, at their net asset value, less such redemption charge, if any, as might be in effect at the time of a redemption. You should assume that it is not likely that our board of directors would vote to convert us to an open-end fund.
 
The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of a majority of the outstanding shares and 67% of a quorum of a majority of the outstanding shares. For the purposes of calculating “a majority of the outstanding voting securities” under our certificate of incorporation, each class and series of our shares will vote together as a single class, except to the extent required by the 1940 Act or our certificate of incorporation, with respect to any class or series of shares. If a separate class vote is required, the applicable proportion of shares of the class or series, voting as a separate class or series, also will be required.
 
Our board of directors has determined that provisions with respect to the board of directors and the stockholder voting requirements described above, which voting requirements are greater than the minimum requirements under Delaware law or the 1940 Act, are in the best interest of stockholders generally.
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Our Credit Facility also contains a covenant that prohibits us from merging or consolidating with any other person or selling all or substantially all of our assets without the prior written consent of WestLB. If we were to engage in such a transaction without such consent, WestLB could accelerate our repayment obligations under, and/or terminate, our Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Borrowings.”
 
In addition, the SBA prohibits, without prior SBA approval, a “change of control” of an SBIC. A “change of control” is any event which would result in the transfer of power, direct or indirect, to direct the management and policies of an SBIC, including through ownership. To the extent that we form an SBIC subsidiary, this would prohibit a change of control of us without prior SBA approval.
 
Limitations of liability and indemnification
 
The Delaware General Corporation Law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties. Our certificate of incorporation will include a provision that eliminates the personal liability of for monetary damages for actions taken as a director, except for liability:

 	• 	for breach of duty of loyalty;	
 	 	 	
 	• 	for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law;	
 	 	 	
 	• 	under Section 174 of the DGCL (unlawful dividends); or	
 	 	 	
 	• 	for transactions from which the director derived improper personal benefit.	
 
Under our certificate of incorporation, we will fully indemnify any person who was or is involved in any actual or threatened action, suit or proceeding by reason of the fact that such person is or was one of our directors or officers. So long as we are regulated under the 1940 Act, the above indemnification and limitation of liability is limited by the 1940 Act or by any valid rule, regulation or order of the SEC thereunder. The 1940 Act provides, among other things, that a company may not indemnify any director or officer against liability to it or its security holders to which he or she might otherwise be subject by reason of his or her willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office unless a determination is made by final decision of a court, by vote of a majority of a quorum of directors who are disinterested, non-party directors or by independent legal counsel that the liability for which indemnification is sought did not arise out of the foregoing conduct.
 
Delaware law also provides that indemnification permitted under the law shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation’s bylaws, any agreement, a vote of stockholders or otherwise.
 
We have obtained liability insurance for our officers and directors.
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SHARES ELIGIBLE FOR FUTURE SALE
 
Immediately prior to this offering, there has been no public market for our common stock. Sales of substantial amounts of our unregistered common stock in the public market or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and our future ability to raise capital through the sale of our equity securities.
 
Upon completion of this offering (after giving effect to the share exchange and assuming the mid-point of the range set forth on the cover of this prospectus),           shares of our common stock will be outstanding (or           shares of our common stock if the underwriters exercise their over-allotment option in full). Of these shares, the           shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless those shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 under the Securities Act.
 
In conjunction with the Share Exchange, we will enter into a registration rights agreement with respect to           shares issued to the selling stockholder and HTF-CHF. As a result and subject to the terms and conditions of the agreements, at any time following 365 days after the completion of this offering the holders of a majority-in-interest of the shares subject to the registration rights agreement (including permitted transferees) can require up to a maximum of three times that we file a registration statement under the Securities Act relating to the resale of all or a part of the shares. In addition, the registration rights agreement also provides for piggyback registration rights with respect to any future registrations of our equity securities and the right to require us to register the resale of their shares on a “shelf” Form N-2 at any time following 365 days after the completion of this offering. We (and, therefore, indirectly our stockholders) will bear customary costs and expenses incurred in connection with the registration of such shares, although the selling stockholder and HTF-CHF will be responsible for the underwriting discounts and selling commissions in a demand registration and their pro rata share of the underwriting discounts and selling commissions in a piggyback registration.
 
Rule 144
 
In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:

 	• 	1% of the number of shares of our common stock then outstanding, which will equal approximately           shares immediately after this offering; or	
 	 	 	
 	• 	the average weekly trading volume of our common stock on the NASDAQ Global Market for the four calendar weeks prior to the sale,	
 
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales must also comply with the manner of sale, current public information and notice provisions of Rule 144.
 
Lock-up Agreements
 
We and our officers and directors and our existing stockholders have agreed with the underwriters, subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, (iii) make any demand for or exercise any right with respect to, the registration of any shares of our common stock or any security convertible into
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or exercisable or exchangeable for common stock for a period of 180 days after the date of this prospectus without the prior written consent of Morgan Stanley & Co. Incorporated and UBS Securities LLC.
 
The 180-day restricted period described above is subject to extension such that, in the event that either (a) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (b) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the “lock-up” restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. See “Underwriters.”
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REGULATION
 
We intend to elect to be regulated as a business development company under the 1940 Act and intend to elect to be treated as a RIC under Subchapter M of the Code. As with other companies regulated by the 1940 Act, a business development company must adhere to certain substantive regulatory requirements. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a business development company unless approved by “a majority of our outstanding voting securities” as defined in the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company’s shares present at a meeting if more than 50% of the outstanding shares of such company are present and represented by proxy or (ii) more than 50% of the outstanding shares of such company. Our bylaws provide for the calling of a special meeting of stockholders at which such action could be considered upon written notice of not less than ten or more than sixty days before the date of such meeting.
 
We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act of 1933, or the Securities Act. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of our investment policies are fundamental and any may be changed without stockholder approval.
 
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by the SEC. For example, under the 1940 Act, absent receipt of exemptive relief from the SEC, we and our affiliates may be precluded from co-investing in private placements of securities. As a result of one or more of these situations, we may not be able to invest as much as we otherwise would in certain investments or may not be able to liquidate a position as quickly.
 
We expect to be periodically examined by the SEC for compliance with the 1940 Act.
 
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
 
We and our Advisor are adopting and implementing written policies and procedures reasonably designed to prevent violation of the federal securities laws and will review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We and our Advisor have designated an interim chief compliance officer to be responsible for administering the policies and procedures.
 
Qualifying assets
 
Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our proposed business are the following:

 	• 	Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from	

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 	 	any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:	

 	• 	is organized under the laws of, and has its principal place of business in, the United States;	
 	 	 	
 	• 	is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and	
 	 	 	
 	• 	satisfies any of the following:	

 	• 	has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange;	
 	 	 	
 	• 	is controlled by a business development company or a group of companies including a business development company, the business development company actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the business development company has an affiliated person who is a director of the eligible portfolio company; or	
 	 	 	
 	• 	is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.	

 	• 	Securities of any eligible portfolio company which we control.	
 	 	 	
 	• 	Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.	
 	 	 	
 	• 	Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.	
 	 	 	
 	• 	Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities.	
 	 	 	
 	• 	Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment.	
 
The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.
 
Managerial assistance to portfolio companies
 
A business development company must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “— Qualifying assets” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the business development company must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance. Where the business development company purchases such securities in conjunction with one or more other persons acting together, the business development company will satisfy this test if one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the business development company, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
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Issuance of Additional Shares
 
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, issue and sell our common stock, at a price below the current net asset value of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the current net asset value of the common stock if our board of directors determines that such sale is in our best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities.
 
Temporary investments
 
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Advisor will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
 
Senior securities; Derivative securities
 
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities are outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Risk Factors — Risks Related to our Business and Structure — We will borrow money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.”
 
The 1940 Act also limits the amount of warrants, options and rights to common stock that we may issue and the terms of such securities. We do not have, and do not anticipate having, outstanding derivative securities relating to our common shares.
 
Code of ethics
 
We and our Advisor have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. You may read and copy the code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 942-8090. In addition, each code of ethics is attached as an exhibit to the registration statement of which this prospectus is a part, and is available on the SEC’s Internet site at  http://www.sec.gov . You may also obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following
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e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102.
 
Proxy voting policies and procedures
 
We have delegated our proxy voting responsibility to our Advisor. The Proxy Voting Policies and Procedures of our Advisor are set forth below. The guidelines are reviewed periodically by our Advisor and our independent directors, and, accordingly, are subject to change.
 
Introduction
 
Our Advisor is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, which we refer to as the Advisers Act. As an investment adviser registered under the Advisers Act, our Advisor has fiduciary duties to us. As part of this duty, our Advisor recognizes that it must vote client securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders. Our Advisor’s Proxy Voting Policies and Procedures have been formulated to ensure decision-making consistent with these fiduciary duties.
 
These policies and procedures for voting proxies are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
 
Proxy policies
 
Our Advisor votes proxies relating to our portfolio securities in what our Advisor perceives to be the best interest of our stockholders. Our Advisor reviews on a case-by-case basis each proposal submitted to a stockholder vote to determine its effect on the portfolio securities held by us. Although our Advisor will generally vote against proposals that may have a negative effect on our portfolio securities, our Advisor may vote for such a proposal if there exist compelling long-term reasons to do so.
 
Our Advisor’s proxy voting decisions are made by those senior officers who are responsible for monitoring each of our investments. To ensure that a vote is not the product of a conflict of interest, our Advisor requires that (1) anyone involved in the decision-making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote and (2) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.
 
Our Advisor has engaged a third-party service provider to assist it in the voting of proxies. This third-party service provider makes recommendations to our Advisor, based on its guidelines, as to how our votes should be cast. These recommendations are then reviewed by our Advisor’s employees, one of whom must approve the proxy vote in writing and return such written approval to the Administrator’s operations group. If a vote may involve a material conflict of interest, prior to approving such vote, our Advisor must consult with its chief compliance officer to determine whether the potential conflict is material and if so, the appropriate method to resolve such conflict. If the conflict is determined not to be material, our Advisor’s employees shall vote the proxy in accordance with our Advisor’s proxy voting policy.
 
Proxy voting records
 
You may obtain information about how we voted proxies by making a written request for proxy voting information to:
 
Chief Compliance Officer
Horizon Technology Finance Corporation
76 Batterson Park Road
Farmington, Connecticut 06032
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Sarbanes-Oxley Act of 2002
 
The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly held companies and their insiders. Many of these requirements affect us. For example:

 	• 	pursuant to Rule 13a-14 under the Exchange Act, our principal executive officer and principal financial officer must certify the accuracy of the financial statements contained in our periodic reports;	
 	 	 	
 	• 	pursuant to Item 307 under Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures;	
 	 	 	
 	• 	pursuant to Rule 13a-15 under the Exchange Act, our management must prepare an annual report regarding its assessment of our internal control over financial reporting, which must be audited by our independent registered public accounting firm; and	
 	 	 	
 	• 	pursuant to Item 308 of Regulation S-K and Rule 13a-15 under the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.	
 
The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated under the act. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.
 
Small Business Investment Company Regulations
 
On July 14, 2009, our Advisor received a Move Forward Letter from the Investment Division of the SBA. We expect to file an application to have a to-be-formed wholly owned subsidiary be licensed by the SBA as an SBIC under Section 301(c) of the Small Business Investment Act of 1958. Although we cannot assure you that we will receive SBA approval, we remain cautiously optimistic that our Advisor will successfully complete the licensing process. To the extent our Advisor receives an SBIC license, we will form an SBIC subsidiary which will be allowed to issue SBA-guaranteed debentures, subject to the required capitalization of the SBIC subsidiary.
 
SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Under present SBA regulations, eligible small businesses generally include businesses that (together with their affiliates) have a tangible net worth not exceeding $18 million and have average annual net income after U.S. federal income taxes not exceeding $6 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, an SBIC must devote 20% of its investment activity to “smaller” concerns as defined by the SBA. A smaller concern generally includes businesses that have a tangible net worth not exceeding $6 million and have average annual net income after U.S. federal income taxes not exceeding $2 million (average net income to be computed without benefit of any net carryover loss) for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible small business or smaller concern, which criteria depend on the primary industry in which the business is engaged and are based on such factors as the number of employees and gross revenue. However, once an SBIC has invested in a company, it may continue to make follow on investments in the company, regardless of the size of the company at the time of the follow on investment, up to the time of the company’s initial public offering, if any.
 
The SBA prohibits an SBIC from providing funds to small businesses for certain purposes, such as relending or investing outside the United States, to businesses engaged in a few prohibited industries and to certain “passive” (i.e., non-operating) companies. In addition, without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30% of the SBIC’s regulatory capital in any one company and its affiliates.
 
The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the permissible interest rate on debt securities held by an SBIC in a portfolio company). Although prior regulations prohibited an SBIC from controlling a small business concern except in limited circumstances,
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regulations adopted by the SBA in 2002 now allow an SBIC to exercise control over a small business for a period of up to seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of time with the SBA’s prior written approval.
 
The SBA restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of a licensed SBIC. A “change of control” is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise. To the extent that we form an SBIC subsidiary, this would prohibit a change of control of us without prior SBA approval.
 
An SBIC (or group of SBICs under common control) may generally have outstanding debentures guaranteed by the SBA in amounts up to twice the amount of the privately raised funds of the SBIC(s). The SBIC regulations currently limit the amount that the SBIC subsidiary would be permitted to borrow up to a maximum of $150 million. This means that the SBIC subsidiary could access the full $150 million maximum available if it were to have $75 million in regulatory capital. However, we would not be required to capitalize our SBIC subsidiary with $75 million and may determine to capitalize it with a lesser amount. In addition, if we are able to obtain financing under the SBIC program, the SBIC subsidiary will be subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Debentures guaranteed by the SBA have a maturity of ten years, require semi-annual payments of interest and do not require any principal payments prior to maturity.
 
The recently enacted American Recovery and Reinvestment Act of 2009, or the 2009 Stimulus Bill, contains several provisions applicable to SBIC funds. One of the key SBIC-related provisions included in the 2009 Stimulus Bill increased the maximum amount of combined SBIC leverage, or the SBIC leverage cap, to $225 million for affiliated SBIC funds. The prior maximum amount of SBIC leverage available to affiliated SBIC funds was approximately $137 million, as adjusted annually based upon changes in the Consumer Price Index. Due to the increase in the maximum amount of SBIC leverage available to affiliated SBIC funds, we, through our SBIC subsidiary, would have access to incremental SBIC leverage to support our future investment activities.
 
SBICs must invest idle funds that are not being used to make loans in investments permitted under SBIC regulations in the following limited types of securities: (1) direct obligations of, or obligations guaranteed as to principal and interest by, the U.S. government, which mature within 15 months from the date of the investment; (2) repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities underlying the repurchase obligations must be direct obligations of or guaranteed by the federal government); (3) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; (4) a deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less; (5) a checking account in a federally insured institution; or (6) a reasonable petty cash fund.
 
SBICs are periodically examined and audited by the SBA’s staff to determine their compliance with SBIC regulations and are periodically required to file certain forms with the SBA.
 
Neither the SBA nor the U.S. government or any of its agencies or officers has approved any ownership interest to be issued by us or any obligation that we or any of our subsidiaries may incur.
 
In connection with the filing of the SBA license application, we will be applying for exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiary guaranteed by the SBA from the 200% consolidated asset coverage ratio requirements, which will enable us to fund more investments with debt capital. However, there can be no assurance that we will receive the exemptive relief requested from the SEC.
 
NASDAQ Global Market Corporate Governance Regulations
 
The NASDAQ Global Market has adopted corporate governance regulations that listed companies must comply with. Upon the completion of this offering, we intend to be in compliance with these corporate governance listing standards. We intend to monitor our compliance with all future listing standards and to take all necessary actions to ensure that we are in compliance therewith.
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Privacy Principles
 
We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
 
Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).
 
We restrict access to nonpublic personal information about our stockholders to our Advisor’s employees with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.
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BROKERAGE ALLOCATIONS AND OTHER PRACTICES
 
Since we will generally acquire and dispose of our investments in privately negotiated transactions, we will infrequently use brokers in the normal course of our business. Subject to policies established by our board of directors, our Advisor will be primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and the allocation of brokerage commissions. Our Advisor does not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. While our Advisor generally will seek reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, our Advisor may select a broker based partly upon brokerage or research services provided to it and us and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if our Advisor determines in good faith that such commission is reasonable in relation to the services provided.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
 
The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in shares of our common stock. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code,” and the regulations of the U.S. Department of Treasury promulgated thereunder, which we refer to as the “Treasury regulations,” each as in effect as of the date of this prospectus. These provisions are subject to differing interpretations and change by legislative or administrative action, and any change may be retroactive. This discussion does not constitute a detailed explanation of all U.S. federal income tax aspects affecting us and our stockholders and does not purport to deal with the U.S. federal income tax consequences that may be important to particular stockholders in light of their individual investment circumstances or to some types of stockholders subject to special tax rules, such as financial institutions, broker-dealers, insurance companies, tax-exempt organizations, partnerships or other pass-through entities, persons holding our common stock in connection with a hedging, straddle, conversion or other integrated transaction, non-U.S. stockholders (as defined below) engaged in a trade or business in the United States or persons who have ceased to be U.S. citizens or to be taxed as resident aliens. This discussion also does not address any aspects of U.S. estate or gift tax or foreign, state or local tax. This discussion assumes that our stockholders hold their shares of our common stock as capital assets for U.S. federal income tax purposes (generally, assets held for investment). No ruling has been or will be sought from the Internal Revenue Service, which we refer to as the “IRS,” regarding any matter discussed herein.
 
For purposes of this discussion:

 	• 	a “U.S. stockholder” means a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes: (1) a person who is a citizen or individual resident of the United States; (2) a domestic corporation (or other domestic entity taxable as a corporation for U.S. federal income tax purposes); (3) an estate whose income is subject to U.S. federal income tax regardless of its source; or (4) a trust if (a) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (b) the trust has in effect a valid election to be treated as a domestic trust for U.S. federal income tax purposes; and	
 	 	 	
 	• 	a “non-U.S. stockholder” means a beneficial owner of shares of our common stock that is not a U.S. stockholder or a partnership (or an entity or arrangement treated as a partnership) for U.S. federal income tax purposes.	
 
If a partnership or other entity classified as a partnership for U.S. federal income tax purposes holds our shares, the U.S. tax treatment of the partnership and each partner generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. A stockholder that is a partnership holding shares of our common stock, and each partner in such a partnership, should consult their own tax advisers with respect to the purchase, ownership and disposition of shares of our common stock.
 
Tax matters are very complicated and the tax consequences to each stockholder of an investment in our shares will depend on the facts of its particular situation. Stockholders are urged to consult their own tax advisers to determine the U.S. federal, state, local and foreign tax consequences to them of an investment in our shares, including applicable tax reporting requirements, the applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty, and the effect of any possible changes in the tax laws.
 
Taxation of the company
 
As a business development company, we intend to elect to be treated, and intend to qualify, as a RIC under Subchapter M of the Code commencing with our taxable year ending on December 31, 2010. As a RIC, we generally will not pay corporate-level federal income taxes on any ordinary income or capital gains that we timely distribute to our stockholders as dividends.
 
To continue to qualify as a RIC, we must, among other things, (a) derive in each taxable year at least 90% of our gross income from dividends, interest (including tax-exempt interest), payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income (including but
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not limited to gain from options, futures or forward contracts) derived with respect to our business of investing in stock, securities or currencies, or net income derived from an interest in a “qualified publicly traded partnership” (a “QPTP”) (the “90% Gross Income Test”); and (b) diversify our holdings so that, at the end of each quarter of each taxable year (i) at least 50% of the market value of our total assets is represented by cash and cash items, U.S. Government securities, the securities of other regulated investment companies and other securities, with other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of our total assets and not more than 10% of the outstanding voting securities of such issuer (subject to the exception described below), and (ii) not more than 25% of the market value of our total assets is invested in the securities of any issuer (other than U.S. Government securities and the securities of other regulated investment companies), the securities of any two or more issuers that we control and that are determined to be engaged in the same business or similar or related trades or businesses, or the securities of one or more QPTPs (the “Diversification Tests”). In the case of a RIC that furnishes capital to development corporations, there is an exception relating to the Diversification Tests described above. This exception is available only to registered investment companies which the SEC determines to be principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available, which we refer to as “SEC Certification.” We have not sought SEC Certification, but it is possible that we will seek SEC Certification in future years. If we receive SEC Certification, we generally will be entitled to include, in the computation of the 50% value of our assets (described in (b)(i) above), the value of any securities of an issuer, whether or not we own more than 10% of the outstanding voting securities of the issuer, if the basis of the securities, when added to our basis of any other securities of the issuer that we own, does not exceed 5% of the value of our total assets.
 
As a RIC, in any fiscal year with respect to which we distribute an amount equal to at least 90% of the sum of our (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net realized short-term capital gains over net realized long-term capital losses and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid and (ii) net tax-exempt interest income (which is the excess of our gross tax-exempt interest income over certain disallowed deductions) (the “Annual Distribution Requirement”), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains for investment or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the associated federal corporate income tax, including the 4% U.S. federal excise tax described below.
 
We will be subject to a nondeductible 4% U.S. federal excise tax on certain of our undistributed income, unless we timely distribute (or are deemed to have timely distributed) an amount equal to the sum of:

 	• 	at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;	
 	 	 	
 	• 	at least 98% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year); and	
 	 	 	
 	• 	certain undistributed amounts from previous years on which we paid no U.S. federal income tax.	
 
While we intend to distribute any income and capital gains in order to avoid imposition of this 4% U.S. federal excise tax, we may not be successful in avoiding entirely the imposition of this tax. In that case, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
 
If we borrow money, we may be prevented by loan covenants from declaring and paying dividends in certain circumstances. Limits on our payment of dividends may prevent us from satisfying distribution requirements, and may, therefore, jeopardize our qualification for taxation as a RIC, or subject us to the 4% U.S. federal excise tax.
 
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our
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stockholders while any senior securities are outstanding unless we meet the applicable asset coverage ratios. See “Regulation — Senior Securities; Derivative Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or to avoid the 4% U.S. federal excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
 
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus the excess of net short-term capital gains over net long-term capital losses). If our expenses in a given year exceed investment company taxable income, we would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain. Due to these limits on the deductibility of expenses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is taxable to our stockholders even if such income is greater than the aggregate net income we actually earned during those years. Such required distributions may be made from our cash assets or by liquidation of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net capital gains from such transactions, you may receive a larger capital gain distribution than you would have received in the absence of such transactions.
 
Failure to qualify as a RIC
 
If, in any particular taxable year, we do not satisfy the Annual Distribution Requirement or otherwise were to fail to qualify as a RIC (for example, because we fail the 90% Gross Income Test), all of our taxable income (including our net capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to stockholders, and distributions generally will be taxable to the stockholders as ordinary dividends to the extent of our current or accumulated earnings and profits. To requalify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements for that year and dispose of any earnings and profits from any year in which we failed to qualify as a RIC. Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year following the non-qualifying year, we could be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which we failed to qualify as a RIC that are recognized within the subsequent 10 years, unless we made a special election to pay corporate-level federal income tax on such built-in gain at the time of our requalification as a RIC.
 
We may decide to be taxed as a regular corporation even if we would otherwise qualify as a RIC if we determine that treatment as a corporation for a particular year would be in our best interests.
 
Company investments
 
Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (ii) convert lower taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (iii) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (iv) cause us to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions and (vii) produce income that will not qualify as good income for purposes of the 90% Gross Income Test. We will monitor our transactions and may make certain tax elections and may be required to borrow money or dispose of securities to mitigate the effect of these rules and to prevent disqualification of us as a RIC but there can be no assurance that we will be successful in this regard.
 
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), we must include in taxable income each year a portion of the original issue discount that accrues over the
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life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Since in certain cases we may recognize taxable income before or without receiving cash representing such income, we may have difficulty meeting the Annual Distribution Requirement.
 
Accordingly, we may need to sell some of our assets at times that we would not consider advantageous, raise additional debt or equity capital or forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take action that are advantageous) in order to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources to satisfy the Annual Distribution Requirement, we may fail to qualify for the federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level federal income tax on all our income.
 
Warrants.  Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. The treatment of such gain or loss as long-term or short-term will depend on how long we held a particular warrant. Upon the exercise of a warrant acquired by us, our tax basis in the stock purchased under the warrant will equal the sum of the amount paid for the warrant plus the strike price paid on the exercise of the warrant.
 
Foreign Investments.  In the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities. We do not expect to satisfy the requirement to pass through to our stockholders their share of the foreign taxes paid by us.
 
Passive Foreign Investment Companies.  We may invest in the stock of a foreign corporation which is classified as a “passive foreign investment company” (within the meaning of Section 1297 of the Code) (“PFIC”). In general, if a special tax election has not been made, we will be required to pay tax at ordinary income rates on any gains and “excess distributions” with respect to PFIC stock as if such items had been realized ratably over the period during which we held the PFIC stock, plus an interest charge. Any adverse tax consequences of a PFIC investment may be limited if we are eligible to elect alternative tax treatment with respect to such investment. No assurances can be given that any such election will be available or that, if available, we will make such an election.
 
Foreign Currency Transactions.  Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time we accrue income or other receivables or accrue expenses or other liabilities denominated in a foreign currency and the time we actually collect such receivables or pay such liabilities generally are treated as ordinary income or loss. Similarly, on disposition of debt instruments and certain other instruments denominated in a foreign currency, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the instrument and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as “section 988” gains or losses, may increase or decrease the amount of our investment company taxable income to be distributed to our shareholders as ordinary income.
 
The remainder of this discussion assumes that we will qualify as a RIC for each taxable year.
 
Taxation of U.S. stockholders
 
The following discussion only applies to U.S. stockholders. Prospective investors that are not U.S. stockholders should refer to “  —  Taxation of non-U.S. stockholders” below and are urged to consult their own tax advisers with respect to the U.S. federal income tax consequences of an investment in our shares, including the potential application of U.S. federal withholding taxes.
 
Actual and Deemed Distributions.  Distributions we pay to you from our ordinary income or from an excess of net realized short-term capital gains over net realized long-term capital losses (together referred to hereinafter as “ordinary income dividends”) are generally taxable to you as ordinary income to the extent of our earnings and profits. Due to our expected investments, in general, distributions will not be eligible for the dividends received deduction allowed to corporate U.S. stockholders and will not qualify for the reduced rates of tax for qualified dividend income allowed to individuals. Distributions made to you from an excess of net realized long-term capital gains over net realized short-term capital losses, which we refer to as “capital gain dividends,” including capital gain dividends credited to you but retained by us, are taxable to you as long-term capital gains if they have been properly designated by us, regardless of the length of time you have owned our shares. Distributions in excess of our earnings and profits will first reduce the adjusted tax basis of your shares and, after the adjusted tax basis is reduced to zero,
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will constitute capital gains to you (assuming the shares are held as a capital asset). The maximum U.S. federal tax rate on long-term capital gains of individuals is generally 15% (5% for individuals in lower brackets) for such gains realized in taxable years beginning on or before December 31, 2010. For non-corporate taxpayers, ordinary income dividends will currently be taxed at a maximum rate of 35%, while capital gain dividends generally will be taxed at a maximum U.S. federal income tax rate of 15% for such dividends received in taxable years beginning on or before December 31, 2010. Without legislation, for non-corporate taxpayers, the maximum U.S. federal income tax rate will increase to 20% in 2011. For corporate taxpayers, both ordinary income dividends and capital gain dividends are currently taxed at a maximum U.S. federal income tax rate of 35%.
 
Generally, you will be provided with a written notice designating the amount of any (i) ordinary income dividends no later than 30 days after the close of the taxable year, and (ii) capital gain dividends or other distributions no later than 60 days after the close of the taxable year.
 
In the event that we retain any net capital gains, we may designate the retained amounts as undistributed capital gains in a written notice to our stockholders provided no later than 60 days after the close of the taxable year. If a designation is made, U.S. stockholders would include in income, as long-term capital gains, their proportionate share of the undistributed amounts, but would be allowed a credit or refund, as the case may be, for their proportionate share of the corporate tax paid by us. In addition, the tax basis of shares owned by a U.S. stockholder would be increased by an amount equal to the difference between (i) the amount included in the U.S. stockholder’s income as long-term capital gains and (ii) the U.S. stockholder’s proportionate share of the corporate tax paid by us.
 
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, if we pay you a dividend in January which was declared in the previous October, November or December to stockholders of record on a specified date in one of these months, then the dividend will be treated for tax purposes as being paid by us and received by you on December 31 of the year in which the dividend was declared.
 
If an investor purchases shares of our stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of its investment.
 
Alternative Minimum Tax.  As a RIC, we will be subject to alternative minimum tax, also referred to as “AMT,” but any items that are treated differently for AMT purposes must be apportioned between us and our U.S. stockholders and this may affect the U.S. stockholders’ AMT liabilities. Although regulations explaining the precise method of apportionment have not yet been issued, such items will generally be apportioned in the same proportion that dividends paid to each U.S. stockholder bear to our taxable income (determined without regard to the dividends paid deduction), unless a different method for particular item is warranted under the circumstances.
 
Dividend Reinvestment Plan.  Under the dividend reinvestment plan, if a U.S. stockholder owns shares of common stock registered in its own name, the U.S. stockholder will have all cash distributions automatically reinvested in additional shares of common stock unless the U.S. stockholder opts out of our dividend reinvestment plan by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. See “Dividend Reinvestment Plan.” Any distributions reinvested under the plan will nevertheless remain taxable to the U.S. stockholder. The U.S. stockholder will have an adjusted basis in the additional common shares purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account.
 
Dispositions.  A U.S. stockholder will recognize gain or loss on the sale, exchange or other taxable disposition of shares of our common stock in an amount equal to the difference between the U.S. stockholder’s adjusted basis in the shares disposed of and the amount realized on their disposition. Generally, gain recognized by a U.S. stockholder on the disposition of shares of our common stock will result in capital gain or loss to a U.S. stockholder, and will be a long-term capital gain or loss if the shares have been held for more than one year at
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the time of sale. Any loss recognized by a U.S. stockholder upon the disposition of shares of our common stock held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received (including amounts credited as an undistributed capital gain dividend) by the U.S. stockholder. A loss recognized by a U.S. stockholder on a disposition of shares of our common stock will be disallowed as a deduction if the U.S. stockholder acquires additional shares of our common stock (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In this case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Present U.S. law taxes both long-term and short-term capital gains of corporations at the rates applicable to ordinary income. Non-corporate U.S. stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate U.S. stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate U.S. stockholders generally may not deduct any net capital losses for a year, but may carry back such losses for three years or carry forward such losses for five years.
 
Tax Shelter Reporting Regulations.  Under applicable Treasury regulations, if a U.S. stockholder recognizes a loss with respect to shares of $2 million or more for a non-corporate U.S. stockholder or $10 million or more for a corporate U.S. stockholder in any single taxable year (or a greater loss over a combination of years), the U.S. stockholder must file with the IRS a disclosure statement on Form 8886. Direct U.S. stockholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, U.S. stockholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to U.S. stockholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. U.S. stockholders should consult their own tax advisers to determine the applicability of these regulations in light of their individual circumstances.
 
Backup Withholding.  We are required in certain circumstances to backup withhold on taxable dividends or distributions paid to non-corporate U.S. stockholders who do not furnish us with their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
 
U.S. stockholders should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in shares of our common stock. Additionally, U.S. stockholders should be aware of recently enacted legislation that generally imposes, effective for payments made after December 31, 2012, a 30% federal withholding tax on dividends and proceeds from the sale of our common stock held by or through foreign entities, as described below in “Recently Enacted Legislation Affecting Taxation of Our Common Stock Held By or Through Foreign Entities.”
 
Taxation of non-U.S. stockholders
 
The following discussion only applies to non-U.S. stockholders. Whether an investment in shares of our common stock is appropriate for a non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in shares of our common stock by a non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their own tax advisers before investing in shares of our common stock.
 
Actual and Deemed Distributions; Dispositions.  Distributions of ordinary income dividends to non-U.S. stockholders, subject to the discussion below, will generally be subject to withholding of U.S. federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current or accumulated earnings and profits even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a non-U.S. stockholder directly, would not be subject to withholding. Different tax consequences may result if the non-U.S. stockholder is engaged in a trade or business in the United States or, in the case of an individual, is present in the United States for 183 days or more during a taxable year and certain other conditions are satisfied. Special certification requirements apply to a non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.
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However, for taxable years beginning before January 1, 2010 (and for taxable years beginning before January 1, 2011 if the pending legislation discussed below in “— Proposed Legislation” is enacted), certain “interest-related dividends” and “short-term capital gain dividends” paid by us to certain non-U.S. stockholders are eligible for an exemption from the 30% federal withholding tax provided that certain requirements are satisfied and that we elect to follow certain procedures. It is uncertain whether we will follow those procedures. Interest-related dividends generally are dividends derived from certain interest income earned by us that would not be subject to such tax if earned by non-U.S. stockholders directly. Short-term capital gain dividends generally are dividends derived from the excess of our net short-term capital gains over net long-term capital losses. No assurance can be given as to whether this exemption will be extended for tax years beginning on or after January 1, 2010 or whether any of our distributions will be designated as eligible for this exemption from withholding tax.
 
Actual or deemed distributions of our net capital gains to a non-U.S. stockholder, and gains recognized by a non-U.S. stockholder upon the sale of our common stock, generally will not be subject to federal withholding tax and will not be subject to federal income tax unless (i) the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the non-U.S. stockholder and, if required by an applicable income tax treaty, are attributable to a permanent establishment maintained by the non-U.S. stockholder in the United States or (ii) in the case of an individual, the non-U.S. stockholder is present in the United States for 183 days or more during a taxable year and certain other conditions are satisfied.
 
If we distribute our net capital gains in the form of deemed rather than actual distributions (which we may do in the future), a non-U.S. stockholder will be entitled to a federal income tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the non-U.S. stockholder is not otherwise required to obtain a U.S. taxpayer identification number or file a federal income tax return.
 
For a corporate non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our common stock that are effectively connected with a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable tax treaty). Accordingly, investment in shares of our common stock may not be appropriate for certain non-U.S. stockholders.
 
Dividend Reinvestment Plan.  Under our dividend reinvestment plan, if a non-U.S. stockholder owns shares of common stock registered in its own name, the non-U.S. stockholder will have all cash distributions automatically reinvested in additional shares of common stock unless it opts out of our dividend reinvestment plan by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. See “Dividend Reinvestment Plan.” If the distribution is a distribution of our investment company taxable income, is not designated by us as a short-term capital gains dividend or interest-related dividend and it is not effectively connected with a U.S. trade or business of the non-U.S. stockholder (or, if required by an applicable income tax treaty, is not attributable to a U.S. permanent establishment of the non-U.S. stockholder), the amount distributed (to the extent of our current or accumulated earnings and profits) will be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable treaty) and only the net after-tax amount will be reinvested in common shares. If the distribution is effectively connected with a U.S. trade or business of the non-U.S. stockholder, generally the full amount of the distribution will be reinvested in the plan and will nevertheless be subject to U.S. federal income tax at the ordinary income rates applicable to U.S. persons. The non-U.S. stockholder will have an adjusted basis in the additional common shares purchased through the plan equal to the amount reinvested. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the non-U.S. stockholder’s account.
 
Backup Withholding.  A non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of federal income tax, may be subject to information reporting and backup withholding of federal income tax on taxable dividends or distributions unless the non-U.S. stockholder provides us or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. stockholder or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to
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you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
 
Non-U.S. stockholders should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in our shares. Additionally, non-U.S. stockholders should be aware of recently enacted legislation that generally imposes, effective for payments made after December 31, 2012, a 30% federal withholding tax on dividends and proceeds from the sale of our common stock held by or through foreign entities, as described below in “Recently Enacted Legislation Affecting Taxation of Our Common Stock Held By or Through Foreign Entities.”
 
Recently Enacted Legislation Affecting Taxation of Our Common Stock Held By or Through Foreign Entities
 
President Obama recently signed into law H.R. 2847 (the “Recently Enacted Legislation”), which will generally impose a federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid after December 31, 2012 to a foreign financial institution unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). The Recently Enacted Legislation will also generally impose a federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid after December 31, 2012 to a non-financial foreign entity unless such entity provides the withholding agent with a certification identifying the direct and indirect U.S. owners of the entity. Under certain circumstances, a non-U.S. stockholder might be eligible for refunds or credits of such taxes. Stockholders are encouraged to consult with their own tax advisors regarding the possible implications of the Recently Enacted Legislation on their investment in our common stock.
 
Proposed Legislation
 
Legislation proposed in Congress would levy an excise tax on certain securities transactions, including transactions in stocks, futures, swaps, credit default swaps and options. If enacted, transactions by us could be subject to this excise tax. This tax is not proposed to apply to the purchase or sale of an interest in a RIC. Other legislation proposed in Congress would permit a temporary exemption from the 30% federal withholding tax for “interest-related dividends” and “short-term capital gain dividends” paid by us to non-U.S. stockholders.
 
Proposed legislation may not become law and, if it does, may not become law in its current form. Even if the proposed legislation is enacted, it is unclear what the actual effective date of any such legislation would be.
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UNDERWRITERS
 
Under the terms and subject to the conditions contained in the underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated and UBS Securities LLC are acting as representatives, have severally agreed to purchase, and we and the selling stockholder have agreed to sell to them, severally, the number of shares of common stock indicated below:

 	 	Number
	 	
Name	 	of Shares	 	
 	 	 	 	 	
Morgan Stanley & Co. Incorporated	 	 	      	 	
UBS Securities LLC	 	 	 	 	
Stifel, Nicolaus & Company, Incorporated	 	 	 	 	
Morgan Keegan & Company, Inc. 	 	 	 	 	
RBC Capital Markets Corporation	 	 	 	 	
BMO Capital Markets Corp. 	 	 	 	 	
Lazard Capital Markets LLC	 	 	 	 	
Northland Securities, Inc.	 	 	 	 	
 	 	 	 	 	
Total	 	 	 	 	

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and the selling stockholder and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of our common stock offered by this prospectus are subject to the approval of legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.
 
The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $      a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $      a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.
 
The underwriters have been granted an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of      additional shares of our common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of our common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to limited conditions, to purchase approximately the same percentage of the additional shares of our common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of our common stock listed next to the names of all underwriters in the preceding table.
 
The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling stockholder. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Per Share	 	 	Without Option	 	 	With Option	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Public offering price	 	$	 	 	 	$	 	 	 	$	 	 	
Sales load (underwriting discount and commissions)	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds, before expenses, to Horizon Technology Finance Corporation	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds, before expenses, to selling stockholder	 	 	 	 	 	 	 	 	 	 	 	 	

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We estimate that the total expenses of this offering, excluding sales load (underwriting discounts and commissions), will be approximately $     .
 
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of our common stock offered by them.
 
We have applied to have our common stock approved for listing on The NASDAQ Global Market under the symbol “HRZN.”
 
Each of us, our directors, executive officers and our other stockholders, including the selling stockholder, has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated and UBS Securities LLC on behalf of the underwriters, each of us will not, during the period ending 180 days after the date of this prospectus:

 	• 	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or	
 	 	 	
 	• 	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock,	
 
whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
 
The restrictions described in the preceding paragraph do not apply to:

 	• 	the sale of shares to the underwriters;	
 	 	 	
 	• 	the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; or	
 	 	 	
 	• 	transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares.	
 
The 180-day restricted period described above is subject to extension such that, in the event that either (a) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (b) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the “lock-up” restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. The release of any securities subject to these lock-up agreements is considered on a case-by-case basis. Factors that would be considered by Morgan Stanley & Co. Incorporated and UBS Securities LLC in determining whether to release securities subject to these lock-up agreements may include the length of time before the lock-up agreement expires, the number of shares or other securities involved, the reason for a requested release, market conditions at the time of the requested release, the trading price of our common shares, historical trading volumes of our common shares and whether the person seeking the release is an officer, director or affiliate of ours.
 
In order to facilitate the offering of our common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position in. our common stock for their own account. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. In addition, in order to cover any over-allotments or to stabilize the price of our common stock, the underwriters may bid for, and purchase, shares of our common stock in the
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open market. Finally, the underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing our common stock in the offering, if the syndicate repurchases previously distributed shares of our common stock to cover syndicate short positions or to stabilize the price of the common stock. Any of these activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
 
We and our Advisor and the selling stockholder have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
 
The underwriters and their affiliates have provided in the past to Horizon Technology Finance Corporation and may provide from time to time in the future in the ordinary course of their business certain commercial banking, financial advisory, investment banking and other services to Horizon Technology Finance Corporation and its affiliates and managed funds and Horizon Technology Finance Corporation or our portfolio companies for which they have received or will be entitled to receive separate fees. In particular, the underwriters or their affiliates may execute transactions with Horizon Technology Finance Corporation or on behalf of Horizon Technology Finance Corporation, or any of our portfolio companies, affiliates and/or managed funds. In addition, the underwriters or their affiliates may act as arrangers, underwriters or placement agents for companies whose securities are sold to or whose loans are syndicated to Horizon Technology Finance Corporation and its affiliates and managed funds.
 
Lazard Frères & Co. LLC referred this transaction to Lazard Capital Markets LLC and will receive a referral fee from Lazard Capital Markets LLC in connection therewith. Northland Capital Markets is the trade name for certain capital markets and investment banking services of Northland Securities, Inc., member FINRA/SIPC.
 
The principal business address of Morgan Stanley & Co. Incorporated is 1585 Broadway, New York, NY 10036. The principal business address of UBS Securities LLC is 299 Park Avenue, New York, NY 10171. The principal business address of Stifel, Nicolaus & Company Incorporated is One Financial Plaza, 501 North Broadway, St. Louis, MO 63102. The principal business address of Morgan Keegan & Company, Inc. is 50 N. Front Street, 19th Floor, Memphis, TN 38103. The principal business address of RBC Capital Markets Corporation is One Beacon Street, Boston, MA 02108. The principal business address of BMO Capital Markets Corp. is 3 Times Square, New York, NY 10036. The principal business address of Lazard Capital Markets LLC is 30 Rockefeller Plaza, New York, NY 10020. The principal business address of Northland Capital Markets is 45 South Seventh Street, Suite 2000, Minneapolis, MN 55402.
 
European Economic Area
 
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Member State it has not made and will not make an offer of our shares to the public in that Member State, except that it may, with effect from and including such date, make an offer of our shares to the public in that Member State:
 
a. at any time to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
 
b. at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
 
c. at any time in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.
 
For the purposes of the above, the expression an “offer of our shares to the public” in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in that Member State.
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United Kingdom
 
Each underwriter has represented and agreed that it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of the shares in circumstances in which Section 21(1) of such Act does not apply to us and it has complied and will comply with all applicable provisions of such Act with respect to anything done by it in relation to any shares in, from or otherwise involving the United Kingdom.
 
Switzerland
 
The Prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations (“CO”) and the shares will not be listed on the SIX Swiss Exchange. Therefore, the Prospectus may not comply with the disclosure standards of the CO and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the shares may not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the shares with a view to distribution.
 
Australia
 
This prospectus is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an investor or their professional advisers would expect to find in a prospectus or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia), in either case, in relation to the securities.
 
The securities are not being offered in Australia to “retail clients” as defined in sections 761G and 761GA of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to “wholesale clients” for the purposes of section 761G of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document in relation to the securities has been, or will be, prepared.
 
This prospectus does not constitute an offer in Australia other than to wholesale clients. By submitting an application for our securities, you represent and warrant to us that you are a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia). If any recipient of this prospectus is not a wholesale client, no offer of, or invitation to apply for, our securities shall be deemed to be made to such recipient and no applications for our securities will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for our securities you undertake to us that, for a period of 12 months from the date of issue of the securities, you will not transfer any interest in the securities to any person in Australia other than to a wholesale client.
 
Hong Kong
 
Our securities may not be offered or sold in Hong Kong, by means of this prospectus or any document other than (i) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (ii) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong). No advertisement, invitation or document relating to our securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere) which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
 
Japan
 
Our securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and our securities will not be offered or sold, directly or indirectly, in Japan, or to, or for the benefit of, any resident of Japan (which term as used herein means any person
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resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan, or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
 
Singapore
 
This document has not been registered as a prospectus with the Monetary Authority of Singapore and in Singapore, the offer and sale of our securities is made pursuant to exemptions provided in sections 274 and 275 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”). Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our securities may not be circulated or distributed, nor may our securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor as defined in Section 4A of the SFA pursuant to Section 274 of the SFA, (ii) to a relevant person as defined in section 275(2) of the SFA pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with the conditions (if any) set forth in the SFA. Moreover, this document is not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. Prospective investors in Singapore should consider carefully whether an investment in our securities is suitable for them.
 
Where our securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
 
(a) by a corporation (which is not an accredited investor as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
 
(b) for a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
 
shares of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 of the SFA, except:
 
(1) to an institutional investor (for corporations under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or any person pursuant to an offer that is made on terms that such shares of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions, specified in Section 275 of the SFA;
 
(2) where no consideration is given for the transfer; or
 
(3) where the transfer is by operation of law.
 
In addition, investors in Singapore should note that the securities acquired by them are subject to resale and transfer restrictions specified under Section 276 of the SFA, and they, therefore, should seek their own legal advice before effecting any resale or transfer of their securities.
 
Pricing of the Offering
 
Prior to this offering, there has been no public market for the shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and our industry in general, sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, market prices of securities and financial and operating information of companies engaged in activities similar to ours.
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CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
 
Our securities are held by Bank of America, N.A., which we refer to as our Custodian, pursuant to a custodian services agreement. The principal business address of Bank of America, N.A. is 135 South LaSalle Street, Chicago, Illinois 60603. Securities held through Credit I are held under a custodial agreement with U.S. Bank National Association, which acts as custodian for West LB pursuant to the Credit Facility. The principal address for U.S. Bank National Association is 1133 Rankin Street, St. Paul, Minnesota 55116. BNY Mellon Shareowner Services will act as our transfer agent, dividend paying agent and registrar pursuant to a transfer agency agreement. The principal business address of BNY Mellon Shareowner Services is 480 Washington Blvd., Jersey City, New Jersey 07310.
 
LEGAL MATTERS
 
Certain legal matters in connection with the common shares will be passed upon for us by Squire, Sanders & Dempsey L.L.P., and for the underwriters by Fried, Frank, Harris, Shriver & Jacobson LLP, New York, New York.
 
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The consolidated financial statements of Compass Horizon Funding Company LLC appearing in this prospectus and registration statement have been audited by McGladrey & Pullen, LLP, an independent registered public accounting firm located at One Church St., New Haven, CT 06510, as stated in their report appearing elsewhere herein, and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed a registration statement with the SEC on Form N-2, together with all amendments and related exhibits, under the Securities Act relating to the shares of common stock we are offering pursuant to this prospectus. This prospectus does not contain all of the information set forth in the registration statement, including any exhibits and schedules it may contain. For further information concerning us or the shares we are offering, please refer to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of any contract or other document filed as an exhibit to the registration statement. Each statement is qualified in all respects by this reference.
 
Upon the completion of this offering, we will file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Securities Exchange Act of 1934. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement of which this prospectus forms a part and the related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov , or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-0102. This information will also be available free of charge by contacting us at 76 Batterson Park Road, Farmington, Connecticut 06032, by telephone at (800) 676-8654, or on our website that we expect to establish upon completion of this offering. In addition, the SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC at  http://www.sec.gov .
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INDEX TO FINANCIAL STATEMENTS

 	 	Page	
 	 	 	 	 	
Unaudited Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	 	 	F-2	 	
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2010 and June 30, 2009	 	 	F-3	 	
Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2010 and June 30, 2009	 	 	F-4	 	
Unaudited Consolidated Statements of Members’ Capital for the six months ended June 30, 2010 and June 30, 2009	 	 	F-5	 	
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and June 30, 2009	 	 	F-6	 	
Notes to Unaudited Consolidated Financial Statements	 	 	F-7	 	
 	 	 	 	 	
Report of Independent Registered Public Accounting Firm	 	 	F-18	 	
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008	 	 	F-19	 	
Consolidated Statements of Operations for the year ended December 31, 2009 and the period from March 4, 2008 (inception) through December 31, 2008	 	 	F-20	 	
Consolidated Statements of Members’ Capital at December 31, 2009 and the period from March 4, 2008 (inception) through December 31, 2008	 	 	F-21	 	
Consolidated Statements of Cash Flows for the year ended December 31, 2009 and the period from March 4, 2008 (inception) through December 31, 2008	 	 	F-22	 	
Notes to Consolidated Financial Statements	 	 	F-23	 	

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Compass Horizon Funding Company LLC

Consolidated Balance Sheets (Unaudited)

 	 	June 30,
	 	 	December 31,
	 	
 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	12,357,156	 	 	$	9,892,048	 	
Loans receivable (Note 3)	 	 	 	 	 	 	 	 	
Venture loans (net of unearned income of:	 	 	 	 	 	 	 	 	
2010 $2,352,145 and 2009 $1,134,146)	 	 	139,548,867	 	 	 	107,755,693	 	
Revolving loans (net of unearned income of:	 	 	 	 	 	 	 	 	
2009 $17,323)	 	 	—	 	 	 	3,664,546	 	
Allowance for loan losses	 	 	(1,504,810	)	 	 	(1,924,034	)	
 	 	 	 	 	 	 	 	 	
Loans receivable, net	 	 	138,044,057	 	 	 	109,496,205	 	
Warrants	 	 	3,459,192	 	 	 	2,457,680	 	
Accrued interest receivable	 	 	1,927,475	 	 	 	1,451,963	 	
Debt issuance costs (net of accumulated amortization of:	 	 	 	 	 	 	 	 	
2010 $2,710,770 and 2009 $2,129,891)	 	 	774,507	 	 	 	1,355,386	 	
Other assets	 	 	373,685	 	 	 	214,731	 	
 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	 	$	156,936,072	 	 	$	124,868,013	 	

LIABILITIES AND MEMBERS’ CAPITAL	 	 	 	 	 	 	 	 	
Borrowings (Note 4)	 	$	91,263,261	 	 	$	64,166,412	 	
Interest rate swap liability (Note 7)	 	 	510,694	 	 	 	767,877	 	
Accrued management fees (Note 10)	 	 	212,437	 	 	 	181,561	 	
Other accrued expenses	 	 	323,445	 	 	 	259,494	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES	 	 	92,309,837	 	 	 	65,375,344	 	
 	 	 	 	 	 	 	 	 	
Commitments and Contingencies (Notes 5 and 6)	 	 	 	 	 	 	 	 	
MEMBERS’ CAPITAL	 	 	 	 	 	 	 	 	
Members’ capital (Note 8)	 	 	65,136,929	 	 	 	60,260,546	 	
Accumulated other comprehensive loss - Unrealized loss on interest rate swaps	 	 	(510,694	)	 	 	(767,877	)	
 	 	 	 	 	 	 	 	 	
TOTAL MEMBERS’ CAPITAL	 	 	64,626,235	 	 	 	59,492,669	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND MEMBERS’ CAPITAL	 	$	156,936,072	 	 	$	124,868,013	 	

See Notes to Unaudited Consolidated Financial Statements
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Compass Horizon Funding Company LLC

Consolidated Statements of Operations (Unaudited)

 	 	Three Months
	 	 	Six Months
	 	
 	 	Ended June 30,	 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INCOME	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	4,152,719	 	 	$	3,677,859	 	 	$	7,897,266	 	 	$	6,891,316	 	
Other interest income	 	 	19,154	 	 	 	10,726	 	 	 	28,491	 	 	 	43,802	 	
Net realized (loss) gain on warrants	 	 	(1,762	)	 	 	138,506	 	 	 	(1,762	)	 	 	138,506	 	
Net unrealized (loss) gain on warrants	 	 	(364,040	)	 	 	3,528	 	 	 	(162,275	)	 	 	448,305	 	
Other income	 	 	97,726	 	 	 	57,237	 	 	 	136,578	 	 	 	67,237	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total income	 	 	3,903,797	 	 	 	3,887,856	 	 	 	7,898,298	 	 	 	7,589,166	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Credit (provision) for loan losses (Note 3)	 	 	116,000	 	 	 	(256,655	)	 	 	419,224	 	 	 	(293,068	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income after credit (provision) for loan losses	 	 	4,019,797	 	 	 	3,631,201	 	 	 	8,317,522	 	 	 	7,296,098	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Management fee expense (Note 10)	 	 	593,468	 	 	 	558,558	 	 	 	1,140,619	 	 	 	1,066,011	 	
Interest expense	 	 	1,089,660	 	 	 	1,057,783	 	 	 	2,092,984	 	 	 	2,078,591	 	
Professional fees	 	 	32,051	 	 	 	98,734	 	 	 	105,013	 	 	 	106,484	 	
General and administrative	 	 	45,933	 	 	 	32,586	 	 	 	102,523	 	 	 	78,618	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	1,761,112	 	 	 	1,747,661	 	 	 	3,441,139	 	 	 	3,329,704	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	2,258,685	 	 	$	1,883,540	 	 	$	4,876,383	 	 	$	3,966,394	 	

See Notes to Unaudited Consolidated Financial Statements
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Compass Horizon Funding Company LLC

Consolidated Statements of Comprehensive Income (Unaudited)

 	 	Three Months
	 	 	Six Months
	 	
 	 	Ended June 30,	 	 	Ended June 30,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	$	2,258,685	 	 	$	1,883,540	 	 	$	4,876,383	 	 	$	3,966,394	 	
Unrealized gain on interest rate swaps	 	 	157,553	 	 	 	257,652	 	 	 	257,183	 	 	 	183,872	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	$	2,416,238	 	 	$	2,141,192	 	 	$	5,133,566	 	 	$	4,150,266	 	

See Notes to Unaudited Consolidated Financial Statements
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Compass Horizon Funding Company LLC

Consolidated Statements of Members’ Capital (Unaudited)

 	 	 	 	 	Accumulated
	 	 	 	 	
 	 	 	 	 	Other
	 	 	 	 	
 	 	Members’
	 	 	Comprehensive
	 	 	 	 	
 	 	Capital	 	 	Loss	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2008	 	$	50,947,371	 	 	$	(1,162,563	)	 	$	49,784,808	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	3,966,394	 	 	 	 	 	 	 	3,966,394	 	
Unrealized gain on interest rate swaps (Note 7)	 	 	 	 	 	 	183,872	 	 	 	183,872	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	4,150,266	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2009	 	$	54,913,765	 	 	$	(978,691	)	 	$	53,935,074	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2009	 	$	60,260,546	 	 	$	(767,877	)	 	$	59,492,669	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	4,876,383	 	 	 	 	 	 	 	4,876,383	 	
Unrealized gain on interest rate swaps (Note 7)	 	 	 	 	 	 	257,183	 	 	 	257,183	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	5,133,566	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2010	 	$	65,136,929	 	 	$	(510,694	)	 	$	64,626,235	 	

See Notes to Unaudited Consolidated Financial Statements
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Compass Horizon Funding Company LLC

Consolidated Statements of Cash Flows (Unaudited)

 	 	Six Months
	 	 	Six Months
	 	
 	 	Ended
	 	 	Ended
	 	
 	 	June 30,
	 	 	June 30,
	 	
 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net income	 	$	4,876,383	 	 	$	3,966,394	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
(Credit) provision for loan losses	 	 	(419,224	)	 	 	293,068	 	
Amortization of debt issuance costs	 	 	580,879	 	 	 	572,000	 	
Net realized loss (gain) on warrants	 	 	1,762	 	 	 	(138,506	)	
Net unrealized loss (gain) on warrants	 	 	162,275	 	 	 	(448,305	)	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Increase in accrued interest receivable	 	 	(475,512	)	 	 	(471,089	)	
Increase (decrease) in unearned loan income	 	 	35,126	 	 	 	(47,404	)	
Increase in other assets	 	 	(158,954	)	 	 	(12,712	)	
Increase (decrease) in other accrued expenses	 	 	63,951	 	 	 	(79,944	)	
Increase in accrued management fees	 	 	30,876	 	 	 	35,299	 	
 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	4,697,562	 	 	 	3,668,801	 	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	
Loans funded	 	 	(49,607,921	)	 	 	(32,154,225	)	
Principal repayments on loans	 	 	20,278,618	 	 	 	7,771,442	 	
Proceeds from settlement of warrants	 	 	—	 	 	 	141,485	 	
 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(29,329,303	)	 	 	(24,241,298	)	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net increase in revolving borrowings	 	 	27,096,849	 	 	 	7,315,077	 	
 	 	 	 	 	 	 	 	 	
Net cash provided by financing activities	 	 	27,096,849	 	 	 	7,315,077	 	
 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	2,465,108	 	 	 	(13,257,420	)	
CASH AND CASH EQUIVALENTS:	 	 	 	 	 	 	 	 	
Beginning of period	 	 	9,892,048	 	 	 	20,024,408	 	
 	 	 	 	 	 	 	 	 	
End of period	 	$	12,357,156	 	 	$	6,766,988	 	
 	 	 	 	 	 	 	 	 	
Cash paid for interest	 	$	1,483,360	 	 	$	1,550,737	 	
 	 	 	 	 	 	 	 	 	
Supplemental non-cash investing and financing activities:	 	 	 	 	 	 	 	 	
Warrants received & recorded as unearned loan income	 	$	1,165,549	 	 	$	671,232	 	
 	 	 	 	 	 	 	 	 	
Decrease in interest rate swap liability	 	$	(257,183	)	 	$	(183,872	)	

See Notes to Unaudited Consolidated Financial Statements
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Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements

Note 1.  	Organization	
 
Compass Horizon Funding Company LLC (“CHF”) was formed as a Delaware limited liability company on January 23, 2008 by and between Compass Horizon Partners, LP, an exempted limited partnership registered in Bermuda (“Compass”) and HTF-CHF Holdings LLC, a Delaware limited liability company (“Horizon”). Compass is the only Class A Member, Horizon is the only Class B Member and there are no other members of any type. CHF was formed to acquire and manage loans to, and warrants from, venture capital backed technology companies in the life sciences and information technology industries. The Company makes loans to companies in these industries which are at a range of life cycle stages including early stage, expansion stage and later stage.
 
Horizon Credit I LLC (“Credit I”) was formed as a Delaware limited liability company on January 23, 2008, with CHF as the sole equity member. Credit I is a special purpose bankruptcy remote entity and is reported herein as a wholly owned subsidiary of CHF.
 
CHF and Credit I are collectively referred to herein as the “Company” which commenced operations on March 4, 2008. CHF sells certain portfolio transactions to Credit I (“Purchased Assets”). Credit I is a separate legal entity from CHF and the Purchased Assets have been conveyed to Credit I and are not available for creditors of CHF or any other entity other than its lenders.

Note 2.  	Summary of Significant Accounting Policies	
 
Basis of Financial Statement Presentation
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the rules and regulations of the SEC. The interim information reflects all adjustments (consisting only of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly state the operating results for the respective periods. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. The notes to the unaudited financial statements should be read in conjunction with the notes to the Company’s December 31, 2009 and 2008 audited financial statements contained within this registration statement.
 
In preparing the consolidated financial statements in accordance with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of warrants and interest rate swaps.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of CHF and Credit I. All inter-company accounts and transactions have been eliminated in consolidation.
 
Cash and Cash Equivalents
 
Cash and cash equivalents as presented in the consolidated balance sheets and the consolidated statements of cash flows include bank checking accounts and money market funds with an original maturity of less than 90 days.
 
Loans
 
Loans receivable are stated at current unpaid principal balances adjusted for the allowance for loan losses, unearned income and any unamortized deferred fees or costs. The Company has the ability and intent to hold its loans for the foreseeable future or until maturity or payoff.
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Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
Interest on loans is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income on loans is determined using a method that results in a level rate of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid. No loans were on non-accrual status as of June 30, 2010 and December 31, 2009.
 
The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees and prepayment fees (collectively, the “Fees”). In a limited number of cases, the Company may also receive a non-refundable deposit earned upon the termination of a transaction. Loan origination fees, net of certain direct origination costs, are deferred, and along with unearned income, are amortized as a level yield adjustment over the respective term of the loan. Fees for counterparty loan commitments with multiple loans are allocated to each loan based upon each loan’s relative fair value. When a loan is placed on non-accrual, the amortization of the related Fee and unearned income is discontinued until the loan is returned to accrual status.
 
Certain loan agreements also require the borrower to make an end-of-term payment that is accrued into income over the life of the loan to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay all principal and interest due.
 
Allowance for Loan Losses
 
The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio as of the balance sheet date. The estimation of the allowance is based on a variety of factors, including past loan loss experience, the current credit profile of the Company’s borrowers, adverse situations that have occurred that may affect individual borrowers’ ability to repay, the estimated value of underlying collateral and general economic conditions. The loan portfolio is comprised of large balance loans that are evaluated individually for impairment and are risk-rated based upon a borrower’s individual situation, current economic conditions, collateral and industry-specific information that management believes is relevant in determining the potential occurrence of a loss event and in measuring impairment. The allowance for loan losses is sensitive to the risk rating assigned to each of the loans and to corresponding qualitative loss factors that the Company uses to estimate the allowance. These factors are applied to the outstanding loan balances in estimating the allowance for loan losses. If necessary, based on performance factors related to specific loans, specific allowance for loan losses are established for individual impaired loans. Increases or decreases to the allowance for loan losses are charged or credited to current period earnings through the provision (credit) for loan losses. Amounts determined to be uncollectible are charged against the allowance for loan losses, while amounts recovered on previously charged-off loans increase the allowance for loan losses.
 
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent.
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
Impaired loans also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. There have been no troubled debt restructurings since the Company’s inception.
 
Warrants
 
In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. Because the warrant agreements contain net exercise or “cashless” exercise provisions, the warrants qualify as derivative instruments. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are also recorded as unearned loan income on the grant date. The unearned income is recognized as interest income over the contractual life of the related loan in accordance with the Company’s income recognition policy. As all the warrants held are deemed to be derivatives, they are periodically measured at fair value using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized gain or loss on warrants. Gains from the disposition of the warrants or stock acquired from the exercise of warrants, are recognized as realized gains on warrants.
 
The Company values the warrant assets incorporating the following material assumptions:

 	• 	Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding.	

 	• 	Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on guideline publicly traded companies within indices similar in nature to the underlying company issuing the warrant. A total of seven such indices were used. The weighted average volatility assumptions used for the warrant valuation at June 30, 2010, December 31, 2009 and June 30, 2009 were 29%, 29% and 25%, respectively.	

 	• 	The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.	

 	• 	Other adjustments, including a marketability discount, are estimated based on management’s judgment about the general industry environment.	
 
Debt Issuance Costs
 
Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lender and are recognized as assets and are amortized as interest expense over the term of the related Credit Facility. The unamortized balance of debt issuance costs as of June 30, 2010 and December 31, 2009 was $774,507 and $1,355,386, respectively. The amortization expense relating to debt issuance costs during the three months ended June 30, 2010 and June 30, 2009 was $290,440 and $286,000, respectively. The amortization expense relating to debt issuance costs during the six months ended June 30, 2010 and June 30, 2009 was $580,879 and $572,000, respectively.
 
Income Taxes
 
The Company is a limited liability company treated as a partnership for U.S. federal income tax purposes and, as a result, all items of income and expense are passed through to, and are generally reportable on, the tax returns of the respective members of each limited liability company. Therefore, no federal or state income tax provision has been recorded.
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
The FASB issued new guidance on accounting for uncertainty in income taxes. The Company adopted this new guidance for the year ended December 31, 2009. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance.
 
Interest Rate Swaps and Hedging Activities
 
The Company recognizes its interest rate swap derivatives on the balance sheet as either an asset or liability measured at fair value. Changes in the derivatives’ fair value are recognized currently in income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the statement of operations and requires the Company to formally document, designate and assess effectiveness of transactions that receive hedge accounting. Derivatives that are not hedges are adjusted to fair value through earnings. If the derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value, if any, is immediately recognized as interest expense.
 
Comprehensive Income
 
Accounting principles generally require that recognized income, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized appreciation or depreciation on interest rate swaps, are reported as a separate component of members’ capital in the consolidated balance sheet, and such items, along with net income, are components of comprehensive income.
 
Fair Value
 
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.
 
Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.
 
The Company’s fair value measurements are classified into a fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows:

Level 1	 	Quoted prices in active markets for identical assets and liabilities.	

Level 2	 	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.	

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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)

 	 	 	
Level 3	 	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.	
 
In February 2010, the FASB issued guidance which amends the existing guidance related to fair value measurements and disclosures. The amendments require the following new fair value disclosures:

 	• 	Separate disclosure of the significant transfers in and out of Level 1 and Level 2 fair value measurements, and a description of the reasons for the transfers.	

 	• 	In the roll forward of activity for Level 3 fair value measurements (significant unobservable inputs), purchases, sales, issuances, and settlements should be presented separately (on a gross basis rather than as one net number).	
 
In addition, the amendments clarify existing disclosure requirements, as follows:

 	• 	Fair value measurements and disclosures should be presented for each class of assets and liabilities within a line item in the balance sheet.	

 	• 	Reporting entities should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3.	
 
The new disclosures and clarifications of existing disclosures are effective for the Company’s interim and annual reporting periods beginning after December 15, 2009, except for the disclosures included in the roll forward of activity for Level 3 fair value measurements, for which the effective date is for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.
 
See Note 10 for additional information regarding fair value.
 
Transfers of Financial Assets
 
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.
 
In June 2009, the FASB issued guidance which modified certain guidance relating to transfers and servicing of financial assets. This guidance eliminates the concept of qualifying special purpose entities, provides guidance as to when a portion of a transferred financial asset can be evaluated for sale accounting, provides additional guidance with regard to accounting for transfers of financial assets and requires additional disclosures. This guidance is effective for the Company as of January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
 
Subsequent Events
 
The Company has evaluated the subsequent events through July 19, 2010, the date on which the financial statements were issued.
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)

Note 3.  	Loans Receivable	
 
Loans receivable consist of term loans and revolving loans. The loans are payable in installments with final maturities ranging from 24 to 48 months and are generally collateralized by all assets of the borrower. As of June 30, 2010 and December 31, 2009, 100.0% and 96.7%, respectively, of the Company’s loans are at fixed rates for their term. The weighted average interest rate of the loan portfolio was 12.73% and 12.64% as of June 30, 2010 and December 31, 2009, respectively. All loans were made to companies based in the United States of America.
 
The following is a summary of the changes in the allowance for loan losses:

 	 	Three Months
	 	 	Three Months
	 	 	Six Months
	 	 	Six Months
	 	
 	 	Ended
	 	 	Ended
	 	 	Ended
	 	 	Ended
	 	
 	 	June 30,
	 	 	June 30,
	 	 	June 30,
	 	 	June 30,
	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at beginning of period	 	$	1,620,810	 	 	$	1,686,066	 	 	$	1,924,034	 	 	$	1,649,653	 	
(Credit) provision for loan losses	 	 	(116,000	)	 	 	256,655	 	 	 	(419,224	)	 	 	293,068	 	
Charge offs, net of recoveries	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at end of period	 	$	1,504,810	 	 	$	1,942,721	 	 	$	1,504,810	 	 	$	1,942,721	 	

 	 	
Note 4.  	Borrowings	
 
Credit I entered into a $150,000,000 Revolving Credit Facility (the “Credit Facility”) with WestLB AG (“WestLB”) effective March 4, 2008. The Credit Facility has a three year initial revolving term and is renewable on March 3, 2011, subject to agreement between the Company and WestLB. If the revolving term is not renewed, the balance will be allowed to amortize over an additional four year term. The interest rate is based upon the one-month LIBOR (0.35% and 0.23% as of June 30, 2010 and December 31, 2009, respectively) plus a spread of 2.50%.
 
The Credit Facility is collateralized by loans held by Credit I and permits an advance rate of up to 75% of eligible loans held by Credit I. The Credit Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the loans securing the Credit Facility to certain criteria for qualified loans and includes portfolio company concentration limits as defined in the related loan agreement. At June 30, 2010 and December 31, 2009, the Company had available borrowing capacity of approximately $58,740,000 and $85,830,000, respectively, and had actual borrowings outstanding of $91,263,261 and $64,166,412, respectively, on the Credit Facility.
 
On June 25, 2010, the Company amended and restated the Credit Facility with WestLB to allow for the change of control that will occur upon the consummation of the planned Share Exchange and IPO described in Note 11. The facility limit will be $125 million upon the completion of the planned IPO. In general, all other terms and conditions of the Credit Facility will remain the same upon the completion of the IPO.

Note 5.  	Financial Instruments with Off-Balance-Sheet Risk	
 
In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
The balance of unfunded commitments to extend credit was approximately $9,250,000 and $5,400,000 as of June 30, 2010 and December 31, 2009, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate CHF to extend credit, such as revolving credit arrangements or similar transactions. Commitments may also include a financial or nonfinancial milestone that has to be achieved before the commitment can be drawn. Commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Note 6.  	Concentrations of Credit Risk	
 
The Company’s loan portfolio consists primarily of loans to development-stage companies at various stages of development in the information technology and life science industries. Many of these companies may have relatively limited operating histories and also may experience variation in operating results. Many of these companies do business in regulated industries and could be affected by changes in government regulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances to service the interest and principal payments on the loans.
 
The largest loans may vary from year to year as new loans are recorded and repaid. The Company’s five largest loans represented approximately 30% and 28% of total loans outstanding as of June 30, 2010 and December 31, 2009, respectively. No single loan represents more than 10% of the total loans as of June 30, 2010 and December 31, 2009. Loan income, consisting of interest and fees, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 20% and 30% of total loan interest and fee income for the three months ended June 30, 2010 and June 30, 2009, respectively. Interest income from the five largest loans accounted for approximately 18% and 31% of total loan interest and fee income for the six months ended June 30, 2010 and June 30, 2009, respectively.

Note 7:  	Interest Rate Swaps and Hedging Activities	
 
On October 14, 2008, the Company entered into two interest rate swap agreements (collectively, the “Swap”) with WestLB, fixing the rate of $10 million at 3.58% and $15 million at 3.20% on the first advances of a like amount of variable rate Credit Facility borrowings. The interest rate swaps expire in October 2011 and October 2010, respectively. The Swap is designated as a cash flow hedge and is anticipated to be highly effective.
 
The Company utilizes the Swap to manage risks related to interest rates on the first $25 million of borrowings on the Company’s Credit Facility. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting.
 
The objective of the Swap is to hedge the risk of changes in cash flows associated with the future interest payments on the first $25 million of the variable rate Credit Facility debt with a combined notional amount of $25 million. This is a hedge of future specified cash flows. As a result, these interest rate swaps are derivatives and were designated as hedging instruments at the inception of the Swap, and the Company has applied cash flow hedge accounting. The Swap is recorded in the consolidated balance sheet at fair value, and any related increases or decreases in the fair value are recognized on the Company’s consolidated balance sheet within accumulated other comprehensive income.
 
At June 30, 2010 and December 31, 2009, the Swap has been recorded as a liability on the consolidated balance sheet and the corresponding unrealized loss on the Swap is recorded in accumulated other comprehensive loss, totaling $510,694 and $767,877, respectively. The Swap does not contain any credit risk related contingent features.
 
The Company assesses the effectiveness of its Swap on a quarterly basis. The Company has considered the impact of the current credit crisis in the United States in assessing the risk of counterparty default. The Company believes that it is still likely that the counterparty for the Swap will continue to perform throughout the contract period, and as a result continues to deem the Swap an effective hedging instrument. As most of the critical terms of
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
the hedging instruments and hedged items match, the hedging relationship is considered to be highly effective. Prospective and retrospective assessments of the ineffectiveness of the hedge have been and will be made at the end of each fiscal quarter. No ineffectiveness on the Swap was recognized during the three or six months ended June 30, 2010 and 2009. During the three and six months ended June 30, 2010, $192,144 and $387,126 was reclassified from accumulated other comprehensive loss into interest expense, respectively, and at June 30, 2010, $430,952 is expected to be reclassified in the next twelve months.

Note 8.  	Members’ Capital	
 
On March 4, 2008, $50,000,000 of capital was contributed to CHF. Since inception, there have been no distributions to members.

Note 9.  	Fair Value	
 
As described in Note 1, the Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.
 
Cash and cash equivalents and accrued interest receivable:  The carrying amount is a reasonable estimate of fair value. These financial instruments are not recorded at fair value on a recurring basis.
 
Loans:  For variable rate loans which re-price frequently and have no significant change in credit risk, carrying values are a reasonable estimate of fair values, adjusted for credit losses inherent in the portfolio. The fair value of fixed rate loans is estimated by discounting the future cash flows using the year end rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for credit losses inherent in the portfolio. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral-dependent impaired loans may be recorded to reflect partial write-downs based on the observable market price or current appraised value of collateral.
 
Warrants:  The Company values its warrants using the Black-Scholes valuation model. The fair value of the Company’s warrants held in publicly traded companies are determined based on inputs that are readily available in public markets or can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level 2 within the fair value hierarchy described in Note 2. The fair value of the Company’s warrants held in private companies are determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Company has categorized these warrants as Level 3 within the fair value hierarchy described in Note 2. These financial instruments are recorded at fair value on a recurring basis.
 
Borrowings:  The carrying amount of borrowings under the revolving credit facility approximates its fair value due to the short duration and variable interest rate of this debt. These financial instruments are not recorded at fair value on a recurring basis. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings.
 
Interest rate swap derivatives:  The fair value of the Company’s interest rate swap derivative instruments is the estimated as the amount the Company would pay to terminate its swaps at the balance sheet date, taking into account current interest rates and the creditworthiness of the counterparty for assets and the creditworthiness of the Company for liabilities. The Company has categorized these derivative instruments as Level 2 within the fair value hierarchy described in Note 2. These financial instruments are recorded at fair value on a recurring basis.
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
Off-balance-sheet instruments:  Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Off-balance-sheet instruments are not recorded at fair value on a recurring basis.
 
The following table details the financial instruments that are carried at fair value and measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, respectively, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

 	 	June 30, 2010	 	
 	 	 	 	 	Quoted Prices in
	 	 	Significant
	 	 	Significant
	 	
 	 	Balance as of
	 	 	Active Markets for
	 	 	Observable
	 	 	Unobservable
	 	
 	 	June 30,
	 	 	Identical Assets
	 	 	Inputs
	 	 	Inputs
	 	
 	 	2010	 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant Assets	 	$	3,459,192	 	 	$	    —	 	 	$	1,115,808	 	 	$	2,343,384	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Rate Swap Liability	 	$	510,694	 	 	$	 —	 	 	$	510,694	 	 	$	—	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2009	 	
 	 	 	 	 	Quoted Prices in
	 	 	Significant
	 	 	Significant
	 	
 	 	Balance as of
	 	 	Active Markets for
	 	 	Observable
	 	 	Unobservable
	 	
 	 	December 31,
	 	 	Identical Assets
	 	 	Inputs
	 	 	Inputs
	 	
 	 	2009	 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant Assets	 	$	2,457,680	 	 	$	    —	 	 	$	447,417	 	 	$	2,010,263	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Rate Swap Liability	 	$	767,877	 	 	$	 —	 	 	$	767,877	 	 	$	—	 	

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets:

 	 	Three
	 	 	Three
	 	 	Six
	 	 	Six
	 	
 	 	Months
	 	 	Months
	 	 	Months
	 	 	Months
	 	
 	 	Ended
	 	 	Ended
	 	 	Ended
	 	 	Ended
	 	
 	 	June 30,
	 	 	June 30,
	 	 	June 30,
	 	 	June 30,
	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Level 3 assets, beginning of period	 	$	2,222,500	 	 	$	1,183,270	 	 	$	2,010,263	 	 	$	556,753	 	
Warrants received and classified as Level 3	 	 	547,329	 	 	 	194,512	 	 	 	823,038	 	 	 	330,182	 	
Unrealized (loss) gains included in earnings	 	 	(424,683	)	 	 	(9,745	)	 	 	(488,155	)	 	 	481,102	 	
Other	 	 	(1,762	)	 	 	(2,979	)	 	 	(1,762	)	 	 	(2,979	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Level 3 assets, end of period	 	$	2,343,384	 	 	$	1,365,058	 	 	$	2,343,384	 	 	$	1,365,058	 	

The Company discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
 
The estimated fair value amounts for 2010 and 2009 have been measured as of the year-end date, and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)
 
estimated fair values of these financial instruments subsequent to the reporting date may be different than amounts reported at year-end.
 
The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
 
As of June 30, 2010 and December 31, 2009, the recorded book balances and estimated fair values of the Company’s financial instruments were as follows:

 	 	June 30, 2010	 	 	December 31, 2009	 	
 	 	Recorded
	 	 	 	 	 	Recorded
	 	 	 	 	
 	 	Book
	 	 	Estimated
	 	 	Book
	 	 	Estimated
	 	
 	 	Balance	 	 	Fair Value	 	 	Balance	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Financial Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash & cash equivalents	 	$	12,357,156	 	 	$	12,357,156	 	 	$	9,892,048	 	 	$	9,892,048	 	
Loans receivable, net	 	$	138,044,057	 	 	$	139,181,289	 	 	$	109,496,205	 	 	$	110,654,287	 	
Warrants	 	$	3,459,192	 	 	$	3,459,192	 	 	$	2,457,680	 	 	$	2,457,680	 	
Accrued interest receivable	 	$	1,927,475	 	 	$	1,927,475	 	 	$	1,451,963	 	 	$	1,451,963	 	
Financial Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	 	$	91,263,261	 	 	$	91,263,261	 	 	$	64,166,412	 	 	$	64,166,412	 	
Interest rate swap liability	 	$	510,694	 	 	$	510,694	 	 	$	767,877	 	 	$	767,877	 	
 
Off-balance-sheet instruments
 
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 10:  	Related Party Transactions	
 
Horizon Technology Finance Management LLC serves as Advisor for the Company under a Management and Services Agreement which provides for management fees payable monthly to the Advisor at a rate of 2.0% per annum of the gross assets of the Company. The Advisor also generates substantially all investment opportunities for the Company. Total management fee expense was $593,468 and $558,558 for the three months ended June 30, 2010 and June 30, 2009, respectively. Total management fee expense was $1,140,619 and $1,066,011 for the six months ended June 30, 2010 and June 30, 2009, respectively. Accrued management fees were $212,437 and $181,561 as of June 30, 2010 and December 31, 2009, respectively.
 
On March 3, 2010, the Company entered into a certain Indemnity Agreement with Compass whereby the Company agreed to indemnify Compass, solely in the event that the planned initial public offering of securities of Horizon Technology Finance Corporation (the “IPO”) is not completed prior to June 30, 2011, for certain costs and expenses incurred by Compass in connection with the preparations for the IPO, up to a maximum amount of $1.2 million plus 8% annual interest accruing from the date Compass paid any indemnified amounts. Pursuant to an agreement among the members of the Company, each member agreed to make its proportional capital contributions to the Company, to the extent necessary, to fund payments required under the Indemnity Agreement.
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Table of Contents
Compass Horizon Funding Company LLC

Notes to Unaudited Consolidated Financial Statements — (Continued)

Note 11:  	Recent Developments	
 
In 2010, the members of the Company intend to exchange their membership interests in the Company for shares of common stock of an entity formed by the Company named Horizon Technology Finance Corporation (the “Share Exchange”). In conjunction with the Share Exchange, Horizon Technology Finance Corporation plans on completing an initial public offering (“IPO”). Immediately prior to the completion of an IPO, the Company, to the extent there is available cash on hand at the Company, expects to make a cash distribution (“Pre-IPO Distribution”) to its Class A Member from net income and as a return of capital. After the Pre-IPO Distribution and immediately prior to the completion of the IPO, all owners of the Company would exchange their membership interests in the Company for shares of common stock of Horizon Technology Finance Corporation. Horizon Technology Finance Corporation is expected to become the public corporation upon the completion of the IPO. Upon the completion of the Share Exchange and the IPO, the Company would become a wholly owned subsidiary of Horizon Technology Finance Corporation.

Note 12:  	Financial Highlights	
 
Following is a schedule of financial highlights for the three and six months ended June 30, 2010 and 2009:

 	 	Three
	 	 	Three
	 	 	Six
	 	 	Six
	 	
 	 	Months
	 	 	Months
	 	 	Months
	 	 	Months
	 	
 	 	Ended
	 	 	Ended
	 	 	Ended
	 	 	Ended
	 	
 	 	June 30,
	 	 	June 30,
	 	 	June 30,
	 	 	June 30,
	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Members’ capital at beginning of period	 	$	62,209,997	 	 	$	51,793,882	 	 	$	59,492,669	 	 	$	49,784,808	 	
Net investment income (1)	 	 	2,508,487	 	 	 	1,998,161	 	 	 	4,621,196	 	 	 	3,672,651	 	
Credit (provision) for loan losses	 	 	116,000	 	 	 	(256,655	)	 	 	419,224	 	 	 	(293,068	)	
Net realized gain (loss) on warrants	 	 	(1,762	)	 	 	138,506	 	 	 	(1,762	)	 	 	138,506	 	
Net unrealized gain (loss) on warrants	 	 	(364,040	)	 	 	3,528	 	 	 	(162,275	)	 	 	448,305	 	
Net unrealized gain (loss) on interest rate swaps	 	 	157,553	 	 	 	257,652	 	 	 	257,183	 	 	 	183,872	 	
Members’ capital at end of period	 	$	64,626,235	 	 	$	53,935,074	 	 	$	64,626,235	 	 	$	53,935,074	 	
Ratios and Supplemental data :	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average Members’ capital	 	$	63,448,927	 	 	$	52,772,927	 	 	$	62,073,656	 	 	$	51,750,549	 	
Ratio of expenses to average Members’ capital (annualized)	 	 	11.1	%	 	 	13.2	%	 	 	11.1	%	 	 	12.9	%	
Ratio of net investment income to average Members’ capital (annualized)	 	 	15.8	%	 	 	15.1	%	 	 	14.9	%	 	 	14.2	%	

(1)	 	Net investment income is computed as net income adjusted for (a) credit (provision) for loan losses, (b) the net realized and unrealized gain (loss) on warrants.	

F-17

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Members
Compass Horizon Funding Company LLC and Subsidiary
Farmington, Connecticut
 
We have audited the accompanying consolidated balance sheets of Compass Horizon Funding Company LLC and Subsidiary (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, members’ equity and cash flows for the year ended December 31, 2009 and the period from March 4, 2008 (inception) to December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Compass Horizon Funding Company LLC and Subsidiary as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the year ended December 31, 2009 and the period from March 4, 2008 (inception) to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ McGladrey & Pullen, LLP
 
New Haven, Connecticut
March 19, 2010

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Table of Contents
Compass Horizon Funding Company LLC
 
Consolidated Balance Sheets

 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	9,892,048	 	 	$	20,024,408	 	
Loans receivable (Note 3) 	 	 	 	 	 	 	 	 	
Venture loans (net of unearned income of:	 	 	 	 	 	 	 	 	
2009 $1,134,146 and 2008 $773,125)	 	 	107,755,693	 	 	 	77,724,006	 	
Revolving loans (net of unearned income of:	 	 	 	 	 	 	 	 	
2009 $17,323 and 2008 $120,541)	 	 	3,664,546	 	 	 	15,405,685	 	
Allowance for loan losses	 	 	(1,924,034	)	 	 	(1,649,653	)	
 	 	 	 	 	 	 	 	 	
Loans receivable, net	 	 	109,496,205	 	 	 	91,480,038	 	
Warrants (Note 7)	 	 	2,457,680	 	 	 	693,644	 	
Accrued interest receivable	 	 	1,451,963	 	 	 	502,915	 	
Debt issuance costs (net of accumulated amortization of:	 	 	 	 	 	 	 	 	
2009 $2,129,889 and 2008 $953,331)	 	 	1,355,386	 	 	 	2,478,667	 	
Other assets	 	 	214,731	 	 	 	35,216	 	
 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	 	$	124,868,013	 	 	$	115,214,888	 	

LIABILITIES AND MEMBERS’ CAPITAL	 	 	 	 	 	 	 	 	
Borrowings (Note 4)	 	$	64,166,412	 	 	$	63,673,016	 	
Interest rate swap liability (Note 8)	 	 	767,877	 	 	 	1,162,563	 	
Accrued management fees	 	 	181,561	 	 	 	159,594	 	
Other accrued expenses	 	 	259,494	 	 	 	434,907	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES	 	 	65,375,344	 	 	 	65,430,080	 	
 	 	 	 	 	 	 	 	 	
Commitments and Contingencies (Notes 5 and 6)	 	 	 	 	 	 	 	 	
MEMBERS’ CAPITAL	 	 	 	 	 	 	 	 	
Members’ capital (Note 9)	 	 	60,260,546	 	 	 	50,947,371	 	
Accumulated other comprehensive loss — Unrealized loss on interest rate swaps	 	 	(767,877	)	 	 	(1,162,563	)	
 	 	 	 	 	 	 	 	 	
TOTAL MEMBERS’ CAPITAL	 	 	59,492,669	 	 	 	49,784,808	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND MEMBERS’ CAPITAL	 	$	124,868,013	 	 	$	115,214,888	 	

See Notes to Consolidated Financial Statements
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Table of Contents
Compass Horizon Funding Company LLC
 
Consolidated Statements of Operations

 	 	 	 	 	March 4, 2008
	 	
 	 	Year Ended
	 	 	(Inception) through
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
INCOME	 	 	 	 	 	 	 	 	
Interest income on loans	 	$	14,987,322	 	 	$	6,530,464	 	
Other interest income	 	 	67,282	 	 	 	358,820	 	
Net realized gains on warrants (Note 7)	 	 	137,696	 	 	 	21,571	 	
Net unrealized gain (loss) on warrants (Note 7)	 	 	892,130	 	 	 	(72,641	)	
Other income	 	 	271,704	 	 	 	131,768	 	
 	 	 	 	 	 	 	 	 	
Total income	 	 	16,356,134	 	 	 	6,969,982	 	
 	 	 	 	 	 	 	 	 	
Provision for loan losses (Note 3)	 	 	(274,381	)	 	 	(1,649,653	)	
 	 	 	 	 	 	 	 	 	
Income after provision for loan losses	 	 	16,081,753	 	 	 	5,320,329	 	
 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	
Management fee expense	 	 	2,202,268	 	 	 	1,073,083	 	
Interest expense	 	 	4,244,804	 	 	 	2,747,540	 	
Professional fees	 	 	131,234	 	 	 	61,008	 	
General and administrative	 	 	190,272	 	 	 	150,184	 	
 	 	 	 	 	 	 	 	 	
Total expenses	 	 	6,768,578	 	 	 	4,031,815	 	
 	 	 	 	 	 	 	 	 	
NET INCOME	 	$	9,313,175	 	 	$	1,288,514	 	

See Notes to Consolidated Financial Statements
F-20

Table of Contents
Compass Horizon Funding Company LLC
 
Consolidated Statements of Members’ Capital

 	 	 	 	 	Accumulated
	 	 	 	 	
 	 	 	 	 	Other
	 	 	 	 	
 	 	Members’
	 	 	Comprehensive
	 	 	 	 	
 	 	Capital	 	 	Loss	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at March 4, 2008	 	$	—	 	 	$	—	 	 	$	—	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	1,288,514	 	 	 	 	 	 	 	1,288,514	 	
Unrealized loss on interest rate swaps (Note 8)	 	 	 	 	 	 	(1,162,563	)	 	 	(1,162,563	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	125,951	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital contribution (net of direct costs of $341,143)	 	 	49,658,857	 	 	 	—	 	 	 	49,658,857	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2008	 	$	50,947,371	 	 	$	(1,162,563	)	 	$	49,784,808	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	9,313,175	 	 	 	 	 	 	 	9,313,175	 	
Unrealized gain on interest rate swaps (Note 8)	 	 	 	 	 	 	394,686	 	 	 	394,686	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	9,707,861	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2009	 	$	60,260,546	 	 	$	(767,877	)	 	$	59,492,669	 	

See Notes to Consolidated Financial Statements
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Table of Contents
Compass Horizon Funding Company LLC
 
Consolidated Statements of Cash Flows

 	 	 	 	 	March 4, 2008
	 	
 	 	 	 	 	(Inception)
	 	
 	 	Year Ended
	 	 	through
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net income	 	$	9,313,175	 	 	$	1,288,514	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Provision for loan losses	 	 	274,381	 	 	 	1,649,653	 	
Amortization of debt issuance costs	 	 	1,123,281	 	 	 	953,331	 	
Net realized gain on settlement of warrants during the period	 	 	(137,696	)	 	 	(21,571	)	
Net unrealized (appreciation) depreciation of warrants during the period	 	 	(892,130	)	 	 	72,641	 	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Increase in accrued interest receivable	 	 	(949,048	)	 	 	(502,915	)	
(Decrease) increase in unearned loan income	 	 	(617,893	)	 	 	117,455	 	
Decrease (increase) in other assets	 	 	18,754	 	 	 	(35,216	)	
(Decrease) increase in other accrued expenses	 	 	(175,413	)	 	 	434,907	 	
Increase in accrued management fees	 	 	21,967	 	 	 	159,594	 	
 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	7,979,378	 	 	 	4,116,393	 	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	
Loans funded	 	 	(49,936,243	)	 	 	(112,177,596	)	
Principal repayments on loans	 	 	31,189,623	 	 	 	18,154,236	 	
Proceeds from settlement of warrants	 	 	141,486	 	 	 	31,500	 	
 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(18,605,134	)	 	 	(93,991,860	)	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	
Capital contributions, net	 	 	—	 	 	 	49,658,857	 	
Net increase in revolving borrowings	 	 	493,396	 	 	 	63,673,016	 	
Debt issuance costs	 	 	—	 	 	 	(3,431,998	)	
 	 	 	 	 	 	 	 	 	
Net cash provided by financing activities	 	 	493,396	 	 	 	109,899,875	 	
 	 	 	 	 	 	 	 	 	
Net (decrease) increase in cash and cash equivalents	 	 	(10,132,360	)	 	 	20,024,408	 	
CASH AND CASH EQUIVALENTS:	 	 	 	 	 	 	 	 	
Beginning of period	 	 	20,024,408	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
End of period	 	$	9,892,048	 	 	$	20,024,408	 	
 	 	 	 	 	 	 	 	 	
Cash paid for interest	 	$	4,244,804	 	 	$	2,747,540	 	
 	 	 	 	 	 	 	 	 	
Supplemental non-cash investing and financing activities:	 	 	 	 	 	 	 	 	
Warrants received & recorded as unearned loan income	 	$	875,696	 	 	$	776,215	 	
 	 	 	 	 	 	 	 	 	
Stock received in settlement of loan	 	$	198,269	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
(Decrease) increase in interest rate swap liability	 	$	(394,686	)	 	$	1,162,563	 	

See Notes to Consolidated Financial Statements
F-22

Table of Contents
Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements

Note 1.  	Organization	
 
Compass Horizon Funding Company LLC (“CHF”) was formed as a Delaware limited liability company on January 23, 2008 by and between Compass Horizon Partners, LP, an exempted limited partnership registered in Bermuda (“Compass”) and HTF-CHF Holdings LLC, a Delaware limited liability company (“Horizon”). Compass is the only Class A Member, Horizon is the only Class B Member and there are no other members of any type. CHF was formed to acquire and manage loans to, and warrants from, venture capital backed technology companies in the life sciences and information technology industries. The Company makes loans to companies in these industries which are at a range of life cycle stages including early stage, expansion stage and later stage.
 
Horizon Credit I LLC (“Credit I”) was formed as a Delaware limited liability company on January 23, 2008, with CHF as the sole equity member. Credit I is a special purpose bankruptcy remote entity and is reported herein as a wholly owned subsidiary of CHF.
 
CHF and Credit I are collectively referred to herein as the “Company” which commenced operations on March 4, 2008. CHF sells certain portfolio transactions to Credit I (“Purchased Assets”). Credit I is a separate legal entity from CHF and the Purchased Assets have been conveyed to Credit I and are not available for creditors of CHF or any other entity other than its lenders.

Note 2.  	Summary of Significant Accounting Policies	
 
Basis of Financial Statement Presentation
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements in accordance with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of warrants and interest rate swaps.
 
On July 1, 2009, the Accounting Standards Codification (“ASC”) became the Financial Accounting Standards Board’s (“FASB”) single source of authoritative U.S. accounting and reporting standards applicable to all public and non-public non-governmental entities, superseding existing authoritative principles and related literature. The adoption of the ASC changed the applicable citations and naming conventions used when referencing generally accepted accounting principles in the Company’s financial statements.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of CHF and Credit I. All inter-company accounts and transactions have been eliminated in consolidation.
 
Cash and Cash Equivalents
 
Cash and cash equivalents as presented in the consolidated balance sheets and the consolidated statements of cash flows includes bank checking accounts and money market funds with an original maturity of less than 90 days.
 
Loans
 
Loans receivable are stated at current unpaid principal balances adjusted for the allowance for loan losses, unearned income and any unamortized deferred fees or costs. The Company has the ability and intent to hold its loans for the foreseeable future or until maturity or payoff.
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Table of Contents
 
Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
Interest on loans is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income on loans is determined using a method that results in a level rate of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the loan is placed on non-accrual status and the recognition of interest income is discontinued. Interest payments received on loans that are on non-accrual status are treated as reductions of principal until the principal is repaid. No loans were on non-accrual status as of December 31, 2009 and 2008.
 
The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees and prepayment fees (collectively, the “Fees”). In a limited number of cases, the Company may also receive a non-refundable deposit earned upon the termination of a transaction. Loan origination fees, net of certain direct origination costs, are deferred, and along with unearned income, are amortized as a level yield adjustment over the respective term of the loan. Fees for counterparty loan commitments with multiple loans are allocated to each loan based upon each loan’s relative fair value. When a loan is placed on non-accrual, the amortization of the related Fee and unearned income is discontinued until the loan is returned to accrual status.
 
Certain loan agreements also require the borrower to make an end-of-term payment that is accrued into income over the life of the loan to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay all principal and interest due.
 
Allowance for Loan Losses
 
The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio as of the balance sheet date. The estimation of the allowance is based on a variety of factors, including past loan loss experience, the current credit profile of the Company’s borrowers, adverse situations that have occurred that may affect individual borrowers’ ability to repay, the estimated value of underlying collateral and general economic conditions. The loan portfolio is comprised of large balance loans that are evaluated individually for impairment and are risk-rated based upon a borrower’s individual situation, current economic conditions, collateral and industry-specific information that management believes is relevant in determining the potential occurrence of a loss event and in measuring impairment. The allowance for loan losses is sensitive to the risk rating assigned to each of the loans and to corresponding qualitative loss factors that the Company uses to estimate the allowance. These factors are applied to the outstanding loan balances in estimating the allowance for loan losses. If necessary, based on performance factors related to specific loans, a specific allowance for loan losses is established for individual impaired loans. Increases or decreases to the allowance for loan losses are charged or credited to current period earnings through the provision (credit) for loan losses. Amounts determined to be uncollectible are charged against the allowance for loan losses, while amounts recovered on previously charged-off loans increase the allowance for loan losses.
 
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent.
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Table of Contents
 
Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
Impaired loans also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. There have been no troubled debt restructurings during 2009 and 2008.
 
Warrants
 
In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. Because the warrant agreements contain net exercise or “cashless” exercise provisions, the warrants qualify as derivative instruments. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are also recorded as unearned loan income on the grant date. The unearned income is recognized as interest income over the contractual life of the related loan in accordance with the Company’s income recognition policy. As all the warrants held are deemed to be derivatives, they are periodically measured at fair value using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized gain or loss on warrants. Gains from the disposition of the warrants or stock acquired from the exercise of warrants, are recognized as realized gains on warrants.
 
The Company values the warrant assets incorporating the following material assumptions:

 	• 	Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding.	
 	 	 	
 	• 	Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on guideline publicly traded companies within indices similar in nature to the underlying company issuing the warrant. A total of seven such indices were used. The weighted average volatility assumptions used for the warrant valuation at December 31, 2009 and 2008 were 29% and 25%, respectively.	
 	 	 	
 	• 	The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.	
 	 	 	
 	• 	Other adjustments, including a marketability discount, are estimated based on management’s judgment about the general industry environment.	
 
Debt Issuance Costs
 
Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lender and are recognized as assets and are amortized as interest expense over the term of the related Credit Facility. The Company paid total debt issuance costs of $3,431,998 during the period ended December 31, 2008. The unamortized balance of debt issuance costs as of December 31, 2009 and 2008 was $1,355,386 and $2,478,667, respectively, and the amortization expense relating to debt issuance costs during the year ended December 31, 2009 and period ended December 31, 2008 was $1,123,281 and $953,331, respectively.
 
Income Taxes
 
The Company is a limited liability company treated as a partnership for U.S. federal income tax purposes and, as a result, all items of income and expense are passed through to, and are generally reportable on, the tax returns of the respective members of each limited liability company. Therefore, no federal or state income tax provision has been recorded.
 
The FASB issued new guidance on accounting for uncertainty in income taxes. The Company adopted this new guidance for the year ended December 31, 2009. Management evaluated the Company’s tax positions and
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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance.
 
Interest Rate Swaps and Hedging Activities
 
The Company recognizes its interest rate swap derivatives on the balance sheet as either an asset or liability measured at fair value. Changes in the derivatives’ fair value are recognized currently in income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the statement of operations and requires the Company to formally document, designate and assess effectiveness of transactions that receive hedge accounting. Derivatives that are not hedges are adjusted to fair value through earnings. If the derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value, if any, is immediately recognized as interest expense.
 
In March 2008, the FASB issued guidance related to disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance and cash flows. The Company adopted this guidance in 2009. See Note 8 for the enhanced disclosures required by this statement.
 
Comprehensive Income
 
Accounting principles generally require that recognized income, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized appreciation or depreciation on interest rate swaps, are reported as a separate component of members’ capital in the consolidated balance sheet, and such items, along with net income, are components of comprehensive income.
 
Fair Value
 
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.
 
Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.
 
The Company’s fair value measurements are classified into a fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows:

Level 1	 	Quoted prices in active markets for identical assets and liabilities.	

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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)

 	 	 	
Level 2	 	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.	
 	 	 	
Level 3	 	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.	
 
Prior to 2009, the fair value guidance only pertained to financial assets and liabilities. On January 1, 2009, the provisions of the fair value accounting guidance became effective for non-financial assets and liabilities. The Company adopted these provisions in 2009, and there was no impact on the financial statements as there were no non-financial assets or liabilities measured at fair value.
 
In April 2009, the FASB issued guidance which addressed concerns that fair value measurements emphasized the use of an observable market transaction even when that transaction may not have been orderly or the market for that transaction may not have been active. This guidance relates to the following: (a) determining when the volume and level of activity for the asset or liability has significantly decreased; (b) identifying circumstances in which a transaction is not orderly; and (c) understanding the fair value measurement implications of both (a) and (b). The Company adopted this new guidance in 2009, and the adoption had no impact on the Company’s financial statements.
 
In February 2010, the FASB issued guidance which amends the existing guidance related to fair value measurements and disclosures. The amendments will require the following new fair value disclosures:

 	• 	Separate disclosure of the significant transfers in and out of Level 1 and Level 2 fair value measurements, and a description of the reasons for the transfers.	
 	 	 	
 	• 	In the roll forward of activity for Level 3 fair value measurements (significant unobservable inputs), purchases, sales, issuances, and settlements should be presented separately (on a gross basis rather than as one net number).	
 
In addition, the amendments clarify existing disclosure requirements, as follows:

 	• 	Fair value measurements and disclosures should be presented for each class of assets and liabilities within a line item in the balance sheet.	
 	 	 	
 	• 	Reporting entities should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3.	
 
The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures included in the roll forward of activity for Level 3 fair value measurements, for which the effective date is for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.
 
See Note 10 for additional information regarding fair value.
 
Transfers of Financial Assets
 
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that
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Table of Contents
 
Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
right) to pledge or exchange the transferred assets, and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.
 
In June 2009, the FASB issued guidance which modifies certain guidance relating to transfers and servicing of financial assets. This guidance eliminates the concept of qualifying special purpose entities, provides guidance as to when a portion of a transferred financial asset can be evaluated for sale accounting, provides additional guidance with regard to accounting for transfers of financial assets and requires additional disclosures. This guidance is effective for the Company as of January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
 
Subsequent Events
 
In May 2009, the FASB issued guidance relating to accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or available to be issued. This guidance defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The guidance became effective for the Company during the year ended December 31, 2009.
 
The Company has evaluated the subsequent events through March 19, 2010, the date on which the financial statements were issued.

Note 3.  	Loans Receivable	
 
Loans receivable consist of term loans and revolving loans. The loans are payable in installments with final maturities ranging from 24 to 48 months and are generally collateralized by all assets of the borrower. As of December 31, 2009 and 2008, 96.7% and 83.4%, respectively, of the Company’s loans are at fixed rates for their term. The weighted average interest rate of the loan portfolio was 12.64% and 12.04% as of December 31, 2009 and 2008, respectively. All loans were made to companies based in the United States of America.
 
The following is a summary of the changes in the allowance for loan losses:

 	 	 	 	 	March 4, 2008
	 	
 	 	 	 	 	(inception)
	 	
 	 	Year Ended
	 	 	through
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Balance at beginning of period	 	$	1,649,653	 	 	$	—	 	
Provision for loan losses	 	 	274,381	 	 	 	1,649,653	 	
Charge offs, net of recoveries	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Balance at end of period	 	$	1,924,034	 	 	$	1,649,653	 	

 	 	
Note 4.  	Borrowings	
 
Credit I entered into a $150,000,000 Revolving Credit Facility (the “Credit Facility”) with WestLB AG (“WestLB”) effective March 4, 2008. The Credit Facility has a three year initial revolving term and is renewable on March 3, 2011, subject to agreement between the Company and WestLB. If the revolving term is not renewed, the
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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
balance will be allowed to amortize over an additional four year term. The interest rate is based upon the one-month LIBOR (0.23% and 0.44% as of December 31, 2009 and 2008, respectively) plus a spread of 2.50%.
 
The Credit Facility is collateralized by loans held by Credit I and permits an advance rate of up to 75% of eligible loans held by Credit I. The Credit Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the loans securing the Credit Facility to certain criteria for qualified loans and includes portfolio company concentration limits as defined in the related loan agreement. At December 31, 2009 and 2008, based on assets of Credit I, the Company had borrowing capacity of approximately $72,160,000 and $65,800,000, respectively, and had actual borrowings outstanding of $64,166,412 and $63,673,016, respectively, on the Credit Facility.

Note 5.  	Financial Instruments with Off-Balance-Sheet Risk	
 
In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.
 
The balance of unfunded commitments to extend credit was $5,400,000 and $18,200,000 at December 31, 2009 and 2008, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate CHF to extend credit, such as revolving credit arrangements or similar transactions. Commitments may also include a financial or nonfinancial milestone that has to be achieved before the commitment can be drawn. Commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Note 6.  	Concentrations of Credit Risk	
 
The Company’s loan portfolio consists primarily of loans to development-stage companies at various stages of development in the information technology and life science industries. Many of these companies may have relatively limited operating histories and also may experience variation in operating results. Many of these companies do business in regulated industries and could be affected by changes in government regulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances to service the interest and principal payments on the loans.
 
The largest loans may vary from year to year as new loans are recorded and repaid. The Company’s five largest loans represented approximately 28% and 29% of total loans outstanding as of December 31, 2009 and 2008, respectively. No single loan represents more than 10% of the total loans as of December 31, 2009 and 2008. Loan income, consisting of interest and fees, can fluctuate significantly upon repayment of large loans. Interest income from the five largest loans accounted for approximately 23% and 21% of total loan interest and fee income for the year ended December 31, 2009 and the period from March 4, 2008 (inception) to December 31, 2008, respectively.

Note 7:  	Warrants	
 
The Company receives warrants from borrowers in connection with the loans receivable. These warrants generally do not produce a current cash return, but are held for potential investment appreciation and capital gains. For the year ended December 31, 2009 and the period ended December 31, 2008, the Company reported realized gains of $137,696 and $21,571, respectively, and net unrealized appreciation and depreciation of $892,130 and $72,641, respectively, on the warrants.
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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)

Note 8:  	Interest Rate Swaps and Hedging Activities	
 
On October 14, 2008, the Company entered into two interest rate swap agreements (collectively, the “Swap”) with WestLB, fixing the rate of $10 million at 3.58% and $15 million at 3.2% on the first advances of a like amount of variable rate Credit Facility borrowings. The interest rate swaps expire in October 2011 and October 2010, respectively. The Swap is designated as a cash flow hedge and is anticipated to be highly effective.
 
The Company utilizes the Swap to manage risks related to interest rates on the first $25 million of borrowings on the Company’s Credit Facility. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting.
 
The objective of the Swap is to hedge the risk of changes in cash flows associated with the future interest payments on the first $25 million of the variable rate Credit Facility debt with a combined notional amount of $25 million. This is a hedge of future specified cash flows. As a result, these interest rate swaps are derivatives and were designated as hedging instruments at the inception of the Swap, and the Company has applied cash flow hedge accounting. The Swap is recorded in the consolidated balance sheet at fair value, and any related increases or decreases in the fair value are recognized on the Company’s consolidated balance sheet within accumulated other comprehensive income.
 
At December 31, 2009 and 2008, the Swap has been recorded as a liability on the consolidated balance sheet and the corresponding unrealized loss on the Swap is recorded in accumulated other comprehensive loss, totaling $767,877 and $1,162,563, respectively. The Swap does not contain any credit risk related contingent features.
 
The Company assesses the effectiveness of its Swap on a quarterly basis. The Company has considered the impact of the current credit crisis in the United States in assessing the risk of counterparty default. The Company believes that it is still likely that the counterparty for the Swap will continue to perform throughout the contract period, and as a result continues to deem the Swap an effective hedging instrument. As most of the critical terms of the hedging instruments and hedged items match, the hedging relationship is considered to be highly effective. Prospective and retrospective assessments of the ineffectiveness of the hedge have been and will be made at the end of each fiscal quarter.
 
No ineffectiveness on the Swap was recognized during the year ended December 31, 2009 and period ended December 31, 2008. During the year ended December 31, 2009, $756,038 was reclassified from accumulated other comprehensive loss into interest expense, and $571,293 is expected to be reclassified in the next twelve months.

Note 9.  	Members’ Capital	
 
On March 4, 2008, $50,000,000 of capital was contributed to CHF. Since inception, there have been no distributions to members.

Note 10.  	Fair Value	
 
As described in Note 1, the Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A description of the valuation methodologies used for assets and liabilities recorded at fair value, and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.
 
Cash and cash equivalents and accrued interest receivable:  The carrying amount is a reasonable estimate of fair value. These financial instruments are not recorded at fair value on a recurring basis.
 
Loans:  For variable rate loans which re-price frequently and have no significant change in credit risk, carrying values are a reasonable estimate of fair values, adjusted for credit losses inherent in the portfolio. The fair value of fixed rate loans is estimated by discounting the future cash flows using the year end rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities,
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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
adjusted for credit losses inherent in the portfolio. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral-dependent impaired loans may be recorded to reflect partial write-downs based on the observable market price or current appraised value of collateral.
 
Warrants:  The Company values its warrants using the Black-Scholes valuation model. The fair value of the Company’s warrants held in publicly traded companies are determined based on inputs that are readily available in public markets or can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level 2 within the fair value hierarchy described in Note 2. The fair value of the Company’s warrants held in private companies are determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Company has categorized these warrants as Level 3 within the fair value hierarchy described in Note 2. These financial instruments are recorded at fair value on a recurring basis.
 
Borrowings:  The carrying amount of borrowings under the revolving credit facility approximates its fair value due to the short duration and variable interest rate of this debt. These financial instruments are not recorded at fair value on a recurring basis. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings.
 
Interest rate swap derivatives:  The fair value of the Company’s interest rate swap derivative instruments is the estimated as the amount the Company would pay to terminate its swaps at the balance sheet date, taking into account current interest rates and the creditworthiness of the counterparty for assets and the credit worthiness of the Company for liabilities. The Company has categorized these derivative instruments as Level 2 within the fair value hierarchy described in Note 2. These financial instruments are recorded at fair value on a recurring basis.
 
Off-balance-sheet instruments:  Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Off-balance-sheet instruments are not recorded at fair value on a recurring basis.
 
The following table details the financial instruments that are carried at fair value and measured at fair value on a recurring basis as of December 31, 2009 and 2008, respectively, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

 	 	December 31, 2009	 	
 	 	 	 	 	Quoted Prices in
	 	 	Significant
	 	 	Significant
	 	
 	 	Balance as of
	 	 	Active Markets for
	 	 	Observable
	 	 	Unobservable
	 	
 	 	December 31,
	 	 	Identical Assets
	 	 	Inputs
	 	 	Inputs
	 	
 	 	2009	 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant Assets	 	$	2,457,680	 	 	$	—	 	 	$	447,417	 	 	$	2,010,263	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Rate Swap Liability	 	$	767,877	 	 	$	—	 	 	$	767,877	 	 	$	—	 	

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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)

 	 	December 31, 2008	 	
 	 	 	 	 	Quoted Prices in
	 	 	Significant
	 	 	Significant
	 	
 	 	Balance as of
	 	 	Active Markets for
	 	 	Observable
	 	 	Unobservable
	 	
 	 	December 31,
	 	 	Identical Assets
	 	 	Inputs
	 	 	Inputs
	 	
 	 	2008	 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant Assets	 	$	693,644	 	 	$	—	 	 	$	136,891	 	 	$	556,753	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Rate Swap Liability	 	$	1,162,563	 	 	$	—	 	 	$	1,162,563	 	 	$	—	 	

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets:

 	 	 	 	 	March 4, 2008
	 	
 	 	Year Ended
	 	 	through
	 	
 	 	December 31,
	 	 	December 31,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Level 3 assets, beginning of period	 	$	556,753	 	 	$	—	 	
Warrants received and classified as Level 3	 	 	535,034	 	 	 	515,037	 	
Unrealized gains included in earnings	 	 	918,476	 	 	 	41,716	 	
 	 	 	 	 	 	 	 	 	
Level 3 assets, end of period	 	$	2,010,263	 	 	$	556,753	 	

The Company discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
 
The estimated fair value amounts for 2009 and 2008 have been measured as of the year-end date, and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than amounts reported at year-end.
 
The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
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Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)
 
As of December 31, 2009 and 2008, the recorded book balances and estimated fair values of the Company’s financial instruments were as follows:

 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	Recorded
	 	 	 	 	 	Recorded
	 	 	 	 	
 	 	Book
	 	 	Estimated
	 	 	Book
	 	 	Estimated
	 	
 	 	Balance	 	 	Fair Value	 	 	Balance	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Financial Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash & cash equivalents	 	$	9,892,048	 	 	$	9,892,048	 	 	$	20,024,408	 	 	$	20,024,408	 	
Loans receivable, net	 	$	109,496,205	 	 	$	110,654,287	 	 	$	91,480,038	 	 	$	92,100,589	 	
Warrants	 	$	2,457,680	 	 	$	2,457,680	 	 	$	693,644	 	 	$	693,644	 	
Accrued interest receivable	 	$	1,451,963	 	 	$	1,451,963	 	 	$	502,915	 	 	$	502,915	 	
Financial Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings	 	$	64,166,412	 	 	$	64,166,412	 	 	$	63,673,016	 	 	$	63,673,016	 	
Interest rate swap liability	 	$	767,877	 	 	$	767,877	 	 	$	1,162,563	 	 	$	1,162,563	 	
 
Off-balance-sheet instruments
 
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 11:  	Related Party Transactions	
 
Horizon Technology Finance Management LLC serves as Advisor for the Company under a Management and Services Agreement which provides for management fees payable monthly to the Advisor at a rate of 2.0% per annum of the gross assets of the Company. The Advisor also generates substantially all investment opportunities for the Company. Total management fee expense was $2,202,268 and $1,073,083 for the year ended December 31, 2009 and the period from March 4, 2008 to December 31, 2008, respectively. Accrued management fees were $181,561 and $159,594 as of December 31, 2009 and 2008, respectively.

Note 12:  	Subsequent Events	
 
In 2010, the members of the Company intend to exchange their membership interests in the Company for shares of common stock of an entity formed by the Company and expected to be named Horizon Technology Finance Corporation (the “Share Exchange”). In conjunction with the Share Exchange, Horizon Technology Finance Corporation plans on completing an initial public offering (“IPO”). Immediately prior to the completion of an IPO, the Company, to the extent there is available cash on hand at the Company, expects to make a cash distribution (“Pre-IPO Distribution”) to its Class A Member from net income and as a return of capital. After the Pre-IPO Distribution and immediately prior to the completion of the IPO, all owners of the Company would exchange their membership interests in the Company for shares of common stock of Horizon Technology Finance Corporation. Horizon Technology Finance Corporation is expected to become the public corporation upon the completion of the IPO. Upon the completion of the Share Exchange and the IPO, the Company would become a wholly owned subsidiary of Horizon Technology Finance Corporation.
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Table of Contents
 
Compass Horizon Funding Company LLC
 
Notes to Consolidated Financial Statements — (Continued)

Note 13:  	Financial Highlights	
 
Following is a schedule of financial highlights for the year ended December 31, 2009 and the period ended December 31, 2008:

 	 	Year Ended
	 	 	Period Ended
	 	
 	 	December 31, 2009	 	 	December 31, 2008	 	
 	 	 	 	 	 	 	 	 	
Members’ capital at beginning of period	 	$	49,784,808	 	 	$	—	 	
Net investment income(1)	 	 	8,557,730	 	 	 	2,989,237	 	
Provision for loan losses	 	 	(274,381	)	 	 	(1,649,653	)	
Net realized gain on warrants	 	 	137,696	 	 	 	21,571	 	
Net unrealized gain (loss) on warrants	 	 	892,130	 	 	 	(72,641	)	
Capital contribution	 	 	—	 	 	 	49,658,857	 	
Net unrealized gain (loss) on interest rate swaps	 	 	394,686	 	 	 	(1,162,563	)	
Members’ capital at end of period	 	$	59,492,669	 	 	$	49,784,808	 	
Ratios and Supplemental data:	 	 	 	 	 	 	 	 	
Average Members’ capital	 	$	53,937,746	 	 	$	50,184,871	 	
Ratio of expenses to average Members’ capital	 	 	12.5	%	 	 	9.6	%	
Ratio of net investment income to average Members’ capital	 	 	15.9	%	 	 	7.1	%	

(1)	 	Net investment income is computed as net income adjusted for (a) provision for loan losses and (b) the net realized and unrealized gain (loss) on warrants.	

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Through and including          , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscription.

 

Table of Contents
Part C
 
OTHER INFORMATION

Item 25.  	Financial statements and exhibits	
 
1. Financial Statements
 
The following financial statements of Horizon Technology Finance Corporation (the “Registrant” or the “Company”) are included in Part A of this Registration Statement.
 
INDEX TO FINANCIAL STATEMENTS

 	 	Page	
 	 	 	 	 	
Unaudited Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009	 	 	F-2	 	
Unaudited Consolidated Statements of Operations for the three months ended March 31, 2010 and March 31, 2009	 	 	F-3	 	
Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2010 and June 30, 2009	 	 	F-4	 	
Unaudited Consolidated Statements of Members’ Capital for the three months ended March 31, 2010 and March 31, 2009	 	 	F-5	 	
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and March 31, 2009	 	 	F-6	 	
Notes to Unaudited Consolidated Financial Statements	 	 	F-7	 	
 	 	 	 	 	
Report of Independent Registered Public Accounting Firm	 	 	F-18	 	
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008	 	 	F-19	 	
Consolidated Statements of Operations for the year ended December 31, 2009 and the period from March 4, 2008 (inception) through December 31, 2008	 	 	F-20	 	
Consolidated Statements of Members’ Capital at December 31, 2009 and the period from March 4, 2008 (inception) through December 31, 2008	 	 	F-21	 	
Consolidated Statements of Cash Flows for the year ended December 31, 2009 and the period from March 4, 2008 (inception) through December 31, 2008	 	 	F-22	 	
Notes to Consolidated Financial Statements	 	 	F-23	 	
 
2. Exhibits

Exhibit
	 	 	
No.	 	Description	
 	 	 	 	 	
 	(a)	 	 	Amended and Restated Certificate of Incorporation(3)	
 	(b)	 	 	Amended and Restated Bylaws(3)	
 	(d)	 	 	Form of Specimen Certificate(2)	
 	(e)	 	 	Form of Dividend Reinvestment Plan(3)	
 	(f)(1)	 	 	Credit and Security Agreement by and among Horizon Credit I LLC, WestLB AG, New York Branch, U.S. Bank National Association, as custodian and paying agent, and WestLB AG, New York Branch, as agent, dated as of March 4, 2008 (3)	
 	(f)(2)	 	 	First Amendment of Transaction Documents by and among Horizon Credit I LLC, West LB AG, New York Branch, U.S. Bank National Association, as custodian and paying agent, West LB AG, New York Branch, as agent, Horizon Technology Finance Management LLC, and Lyon Financial Services, Inc., dated as of September 30, 2008. (3)	

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Exhibit
	 	 	
No.	 	Description	
 	 	 	 	 	
 	(f)(3)	 	 	Second Amendment of Transaction Documents by and among Horizon Credit I LLC, West LB AG, New York Branch, as the lender and agent, and U.S. Bank National Association, as custodian, dated as of October 7, 2008. (3)	
 	(f)(4)	 	 	Third Amendment of Transaction Documents by and among Horizon Credit I LLC, Compass Horizon Financing Company LLC, West LB AG, New York Branch, as the lender and agent, and U.S. Bank National Association, as custodian, dated as of June 25, 2010. (3)	
 	(f)(5)	 	 	Sale and Contribution Agreement by and between Compass Horizon Funding Company LLC and Horizon Credit I LLC, dated as of March 4, 2008 (3)	
 	(g)	 	 	Form of Investment Management Agreement(3)	
 	(h)	 	 	Form of Underwriting Agreement(3)	
 	(j)	 	 	Form of Custody Agreement(2)	
 	(k)(1)	 	 	Form of Administration Agreement(3)	
 	(k)(2)	 	 	Form of License Agreement by and between the Registrant and Horizon Technology Finance Management LLC (3)	
 	(k)(3)	 	 	Form of Registration Rights Agreement among Compass Horizon Partners, LP, HTF-CHF Holdings LLC and the Company (3)	
 	(k)(4)	 	 	Form of Exchange Agreement by and among Compass Horizon Partners, LP, HTF-CHF Holdings LLC, Compass Horizon Funding Company LLC and Horizon Technology Finance Corporation (2)	
 	(l)	 	 	Opinion and Consent of Counsel to the Company(1)	
 	(n)	 	 	Consent of Independent Registered Public Accounting Firm(2)	
 	(r)(1)	 	 	Code of Ethics of the Company(2)	
 	(r)(2)	 	 	Code of Ethics of our Advisor(2)	

 	 	 	
(1)	 	To be filed by amendment.	
 	 	 	
(2)	 	Filed herewith.	
 	 	 	
(3)	 	Previously filed.	

Item 26.  	Marketing arrangements	
 
The information contained under the heading “Underwriters” in this Registration Statement is incorporated herein by reference.
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Item 27.  	Other expenses of issuance and distribution	
 
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this registration statement:

SEC registration fee	 	$	8,912.50	 	
FINRA filing fee	 	 	13,000	 	
NASDAQ Global Market listing fee	 	 	125,000	 	
Printing (other than certificates)	 	 	*	 	
Engraving and printing certificates	 	 	*	 	
Accounting fees and expenses	 	 	*	 	
Legal fees and expenses	 	 	*	 	
Transfer agent fees	 	 	*	 	
Miscellaneous fees and expenses	 	 	*	 	
 	 	 	 	 	
Total	 	$	1,500,000	 	

 
 	 	 	
*	 	To be furnished by amendment.	
 
All of the expenses set forth above shall be borne by the Registrant.

Item 28.  	Persons controlled by or under common control with the registrant	
 
Immediately following the completion of the Share Exchange, we will own 100% of the outstanding equity interests of Compass Horizon Funding Company LLC, a Delaware limited liability company.

Item 29.  	Number of holders of shares	
 
The following table sets forth the approximate number of record holders of the Company’s common stock as of          , 2010:

Title of Class	 	Number of Record Holders	 	
 	 	 	 	 	
Common Stock, $0.001 par value	 	 	 	 	

Item 30.  	Indemnification	
 
The information contained under the heading “Description of Capital Stock” is incorporated herein by reference.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is again public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
 
The Registrant carries liability insurance for the benefit of its directors and officers (other than with respect to claims resulting from the willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office) on a claims-made basis.
 
The Registrant has agreed to indemnify the underwriters against specified liabilities for actions taken in their capacities as such, including liabilities under the Securities Act.
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Item 31.  	Business and Other Connections of Investment Advisor	
 
A description of any other business, profession, vocation or employment of a substantial nature in which Horizon Technology Finance Management LLC, which we refer to as our “Advisor,” and each managing director, director or executive officer of our Advisor, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the section entitled “Our Advisor.” Additional information regarding our Advisor and its executive officers and directors is set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-71141), and is incorporated herein by reference. See “Management.”

Item 32.  	Location of accounts and records	
 
The Registrant’s accounts, books and other documents are currently located at the offices of the Registrant, c/o Advisor, 76 Batterson Park Road, Farmington, Connecticut 06032, and at the offices of the Registrant’s Custodian and Transfer Agent, .

Item 33.  	Management services	
 
Not Applicable.

Item 34.  	Undertakings	

(1) 	The Registrant hereby undertakes to suspend the offering of its common stock until it amends its prospectus if (a) subsequent to the effective date of its Registration Statement, the net asset value declines more than 10% from its net asset value as of the effective date of the Registration Statement or (b) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus.	
 	 	
(2) 	Not applicable.	
 	 	
(3) 	Not applicable.	
 	 	
(4) 	Not applicable.	

(5) (a) 	For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of the Registration Statement as of the time it was declared effective.	

    (b) 	For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.	

(6) 	Not applicable.	

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SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Farmington, and State of Connecticut, on the 19 th  day of July, 2010.
 
HORIZON TECHNOLOGY FINANCE CORPORATION

 	By: 	/s/  Robert D. Pomeroy, Jr.	
Name:     Robert D. Pomeroy, Jr.
 	 	 	
 	Title: 	Chief Executive Officer	
 
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities set forth below on July 19, 2010. This document may be executed by the signatories hereto on any number of counterparts, all of which constitute one and the same instrument.

Name	 	Title	 	 	

/s/  Robert D. Pomeroy, Jr.
Robert D. Pomeroy, Jr.	 	Chief Executive Officer and
Chairman of the Board of Directors	 	 	
 	 	 	 	 	
*
Gerald A. Michaud	 	President and Director	 	 	
 	 	 	 	 	
*
David P. Swanson	 	Director	 	 	
 	 	 	 	 	
*
James J. Bottiglieri	 	Director	 	 	
 	 	 	 	 	
*
Edmund V. Mahoney	 	Director	 	 	
 	 	 	 	 	
*
Brett N. Silvers	 	Director	 	 	
 	 	 	 	 	
*
Christopher B. Woodward	 	Director	 	 	
 	 	 	 	 	
/s/  Christopher M. Mathieu
Christopher M. Mathieu	 	Senior Vice President and
Chief Financial Officer	 	 	
 	 	 	 	 	 	 	
*By:	 	/s/  Robert D. Pomeroy, Jr.
Attorney-in-fact	 	 	 	 	

Exhibit (d)

 
     The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
 	 	 	 	 	 	 	 	 	 	 	
TEN COM	 	—	 	as tenants in common	 	 	 	UNIF GIFT MIN ACT-	 	_________ Custodian _________	
TEN ENT	 	—	 	as tenants by the entireties	 	 	 	 	 	     (Cust)                            (Minor)	
JT TEN	 	—	 	as joint tenants with right
of survivorship and not as
tenants in common	 	 	 	 	 	
under Uniform Gifts to Minors

Act _______________	
 	 	 	 	 	 	 	 	 	 	                  (State)	
Additional abbreviations may also be used though not in the above list.
     For value received, _________________________ hereby sell, assign and transfer unto
 	 	 	
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE	 	 	

 	 	 	

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE

 
Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
 
  Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated, ________________________
 	 	 	 	 	
 	 	NOTICE:	 	THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.	
 	 	 	 	 	
SIGNATURE(S) GUARANTEED:	 	 	 	 	

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.	 	 	 	 	

Exhibit (j)
Bank of America, N.A.
Custodial Agreement
     Agreement dated as of _______, 2010 between Bank of America, National Association (“Bank of America” or the “ Custodian ”) and  Horizon Technology Finance Corporation  (the “ Client ”).
     1. Employment of Custodian. The Client hereby employs the Custodian as custodian of all assets of the Client which are delivered to and accepted by the Custodian (the “ Property ”) pursuant to the terms and conditions set forth herein. For purposes of this Agreement, “delivery” of Property shall include the acquisition of a security entitlement (as that term is defined in the New York Uniform Commercial Code (“ UCC ”)) with respect thereto. Without limitation, such Property shall include stocks and other equity interests of every type, evidences of indebtedness, other instruments representing same or rights or obligations to receive, purchase, deliver or sell same and other non-Cash investment property of the Client (“ Securities ”) and cash from whatever source and in whatever currency (“ Cash ”),  provided that  the Custodian shall have the right, in its sole discretion, to refuse to accept as Property any property that the Custodian considers not to be appropriate or in proper form for deposit for any reason. The Custodian shall not be responsible for any property not delivered to and accepted by the Custodian or any of its Sub-custodians (as that term is defined in  Section 4  below) as hereinafter provided.
     2. Custody Account. The Custodian agrees to establish and maintain one or more custody account(s) on its books in the name of the Client (collectively, the “ Account ”) for, and will segregate on its books and records, any and all Property consisting of Securities from time to time received and accepted by the Custodian or any of its Sub-custodians for the Client hereunder. Such initial account(s) shall be listed on  Exhibit A  attached hereto, which list shall be updated and distributed to the Client from time to time. Any and all Property consisting of Cash from time to time received and accepted by the Custodian or any of its Sub-custodians for the account of the Client hereunder shall be credited to the Account on the books of the Custodian. The Client acknowledges its responsibility as a principal for all of its obligations to the Custodian arising under or in connection with this Agreement, notwithstanding that it may be acting on behalf of other persons, and warrants its authority to deposit, in the Account, any Property received therefor by the Custodian or its Sub-custodians and to give, and authorize others to give, instructions relative thereto pursuant to the terms of this Agreement. The Client further agrees that the Custodian shall not be subject to, nor shall its rights and obligations under this Agreement or with respect to the Account be affected by, any agreement between the Client and any other person to which the Custodian is not a party.
     The Custodian shall hold, on behalf of the Client, all Property in the Account and, to the extent such Property constitutes financial assets for purposes of the UCC, shall maintain those financial assets as security entitlements in favor of the Client. Except as may otherwise be provided herein in respect of Securities issued outside the United States and collections of income in a currency other than United States dollars, all transactions involving the Property

 
shall be executed or settled solely in accordance with Instructions (as that term is defined in Section 9), except that until the Custodian receives Instructions to the contrary, the Custodian will:
 	(a)	 	receive all interest and dividends and all other income and payments, whether paid in Cash or in kind, on the Property, as the same are paid by the related payor, and credit the same to the Account;	
 	 	 	 	
 	(b)	 	present for payment all Securities held in the Account which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation to the extent that the Custodian has received written notice of such call, redemption, retirement or other payment event and credit the Cash received to the Account;	
 	 	 	 	
 	(c)	 	(i) exchange Securities where the exchange is purely ministerial and no exercise of discretion is required (including, without limitation, the exchange of temporary securities for those in definitive form and the exchange of warrants, or other documents of entitlement to securities, for the Securities themselves); and (ii) when notification of a tender or exchange offer (other than ministerial exchanges described in (i) above) is received for the Account, forward such notification to the Client (or its designee),  provided ,  however , that if such Instructions in respect hereof are not received from Client (or its designee) in time for the Custodian to take timely action, no action shall be taken with respect thereto;	
 	 	 	 	
 	(d)	 	execute in the Client’s name for the Account, whenever the Custodian deems it appropriate, such ownership and other certificates as may be required to obtain the payment of income from the Property;	
 	 	 	 	
 	(e)	 	appoint brokers and agents for any of the ministerial transactions involving the Securities described in (a) - (d) above, including without limitation, affiliates of the Custodian or any Sub-custodian; and	
 	 	 	 	
 	(f)	 	unless otherwise instructed by the Client, distribute or invest Cash received in the Account in accordance with the standing instructions attached hereto as  Exhibit B-1  and  Exhibit B-2  no later than the Business Day on which such Cash (including proceeds from the sale of Securities) is received, or, to the extent that such Cash is received after the cut-off time for the selected investment, on the following Business Day.	
     The Client may also instruct the Custodian to make one-time disbursements by providing Instructions in the form of Exhibit H  attached hereto. The Custodian shall deliver, subject to  Section 9  below, any and all Property in the Account in accordance with Instructions. “ Business Day ” means a day other than a Saturday, Sunday or other day on which commercial banks in Chicago, Illinois are authorized to or required by law to close.
     Funds in the Account may be retained in the Account or invested as directed by the Client in writing to the Custodian, such instructions to be attached hereto as  Exhibit B-2  and deemed a part of this Agreement. The Client shall treat all income, gains, and losses from the investment
2

 
of funds in the Account as its income or loss for federal, state, and local income tax purposes. The Custodian shall have no liability for any loss in investments of funds in the Account (other than losses resulting from the gross negligence or willful misconduct of the Custodian).
     3. Records, Ownership of Property and Statements. The ownership of the Property, whether maintained directly by the Custodian or indirectly through a Sub-custodian or a Securities System (as that term is defined in  Section 4 ) in which the Custodian participates, shall be clearly recorded on the Custodian’s books as belonging to the Account and not for the Custodian’s own interest. The Custodian shall keep accurate and detailed accounts of all investments, receipts, disbursements and other transactions for the Account.
     Subject to the election of the Client as hereinafter provided, the Custodian will supply to the Client on a monthly basis, a statement in respect to any Property in the Account. In the absence of the filing in writing with the Custodian by the Client of exceptions or objections to any such statement within sixty (60) days of the delivery thereof, the Client shall be deemed to have approved such statement; and in such case or upon written approval of the Client of any such statement, such statement shall be presumed to be correct for all purposes with respect to all information set forth therein. In addition, the Client understands that it has the option to elect to participate in the Custodian’s Trust View Express (web) product which can provide the Client, on a daily basis, with the ability to view on-line or to print on hard copy (the “ Electronic On-Line System ”): (i) all transactions involving the delivery in and out of the Account on a free or payment basis; (ii) payments of principal and interest; (iii) pending transactions (excluding outgoing wires); and (iv) Securities and Cash in the Account, together with market values thereof. The Client agrees that its receipt of online statements and all other related online communications will satisfy all of Custodian’s existing legal and contractual obligations to provide statements and reports with respect to the Client’s Account. Access to the Custodian’s Trust View Express (web) product will be made available to the Client upon (i) the delivery by the Client to the Custodian of a completed Trust Account Web Access Enrollment Form in the form attached hereto as  Exhibit J-1  and (ii) the execution and delivery by the Client to the Custodian of the Trust Web Site Services Agreement in the form attached hereto as  Exhibit J-2 .
     4. Sub-custodians and Securities Systems. The Client authorizes and instructs the Custodian to maintain the Property in the Account directly in one of its branches or indirectly through custody accounts which have been established by the Custodian with the following other securities intermediaries: (a) another bank or trust company or branch thereof located within or outside of the United States (individually, a “ Sub-custodian ”), or (b) a securities depository or clearing agency or system in which the Custodian or Sub-custodian participates (individually, a “ Securities System ”). The Custodian shall select in its sole discretion the Sub-custodian or Securities System in the custody of which any of the Securities may be so maintained or with which any Cash may be so deposited; provided that any such arrangement will not be entered into without prior written notice to the Client (or as otherwise provided in the Investment Company Act of 1940, as amended (the “ 1940 Act ”)). The Custodian may, at any time in its discretion, upon written notification to the Client, terminate the employment of any Sub-custodian or Securities System.
     5. Holding of Securities, Nominees, etc. Securities in the Account which are maintained by the Custodian or any Sub-custodian may be held directly by such entity in the
3

 
name of the Client or in bearer form or maintained in the Custodian’s or the Sub-custodian’s own name or in the name of the Custodian’s or Sub-custodian’s nominee. Securities which are maintained through a Sub-custodian or are eligible for deposit in a Securities System as provided above may be maintained with the Sub-custodian or the Securities System in an account for the Custodian’s or Sub-custodian’s customers. Securities maintained with the Securities System shall be maintained subject to the rules of that Securities System governing the rights and obligations among the Securities System and its participants.
     6. Proxies, etc. If the Custodian shall receive any proxies, notices, reports or other communications relative to any of the Securities in the Account, the Custodian shall transmit to the Client (or the Client’s designee and, in this  Section 6 , references to the Client shall be deemed to include references to its designee, if any), or notify the Client of the receipt of, such proxies, notices, reports or other communications, in each case in accordance with its standard notification procedures. At the direction of the Client, the Custodian, or its nominees or agents, shall vote upon or in respect of the Securities in the Account, execute any form of proxy to vote thereon, or give any consent or take any similar action with respect thereto. In the absence of such direction from the Client, the Custodian shall have no obligation to take any of the foregoing actions in respect of the Securities in the Account.
     7. Settlement Procedures. Delivery Instructions for the Custodian are specified in Exhibit C attached hereto.
     (a) The proceeds from the sale or exchange of Securities will be credited and the cost of such Securities purchased or acquired will be debited to the Account. If the Client has directed the Custodian to disburse Cash received into the Account, proceeds from the sale of a Security may remain in the Account until the following Business Day. Proceeds from the sale of a security will be disbursed or invested in accordance with Section 2(f). Settlement and payment for Securities received for the Account and delivery of Securities out of the Account may be affected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs. The Custodian shall not be liable for any loss which results from effecting transactions in accordance with the customary or established securities trading or securities processing practices and procedures in the applicable jurisdiction or market.
     (b) Settlement of trades of assets (other than physical assets, repurchase agreements, assets held through Euroclear Bank S.A./N.V., as operator of the Euroclear System (“ Euroclear ”), Clearstream Banking, Luxembourg S.A. (“ Clearstream ”) or a Sub-custodian) into the Account and posting of income and principal payments on such assets into the Account will be on a contractual basis. The Custodian shall not be required to comply with any Instructions to settle the purchase of any securities for the Account unless there are sufficient immediately available funds in the Account at the time the trade for such securities is matched for settlement. In the event that the Custodian settles a trade of assets into the Account without there being sufficient immediately available funds in the Account, the Client will deposit the amount of any such shortfall, together with all associated overdraft charges, into the Account by 4:30 p.m. (New York time) on the day of receipt of notice of such shortfall from the Custodian. In the event that the Custodian has not received funds in the amount of such shortfall from the Client by such time, the Custodian may cancel, DK or reverse the settlement of the related trade. The Client
4

 
agrees that it will not use the Account to facilitate the purchase of securities without sufficient funds in the Account (which funds shall not include the proceeds of the sale of the purchased securities). Settlement of trades of physical assets, repurchase agreements, assets held through Euroclear or Clearstream, or assets held through a Sub-custodian into the Account and posting of income and principal payments on such assets into the Account will be on an actual basis.
     (c) Securities will be transferred, exchanged or delivered by the Custodian or a Sub-custodian upon receipt by the Custodian of Instructions which include all information required by the Custodian. Settlement and payment for Securities received for the Account and delivery of Securities out of the Account may be affected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs.
     8. Notice for Trades. In order to ensure proper settlement of trades, the Custodian shall receive notice via email or facsimile of any upcoming trade activity, delivered in accordance with the Delivery Instructions (as specified in  Exhibit C ) and a completed Pending Trade Notice (attached hereto as  Exhibit G ) no later than one (1) Business Day prior to settlement date for both book entry trades and physical trades, unless the Client or its designee is affirming its own book entry trades. Any Pending Trade Notice sent to the Custodian via facsimile or electronic mail from an individual listed as an Authorized Signer (attached hereto as  Exhibit D ) or from the Client via electronic mail with a copy to an Authorized Signer shall constitute notice of a pending trade required pursuant to this  Section 8 . Physical sales that require the security being held by the Custodian to be split prior to the settlement date require notice of at least seven (7) Business Days prior to the proposed settlement date and will be subject to the transfer agent’s turnaround time for processing splits. Physical sales that do not require the security being held by the Custodian to be split prior to the settlement date require notice of at least three (3) Business Days prior to the proposed settlement date.
     9. Instructions. The term “Instructions” means instructions from the Client in respect of any of the Custodian’s duties hereunder which have been received by the Custodian at its address set forth in  Exhibit C : (i) in writing in the form of either  Exhibit G  or  Exhibit H  (including, without limitation, facsimile transmission and PDF files delivered by email) signed by such person or persons as the Client shall have from time to time authorized to give the particular class of Instructions in question and whose name, title and specimen signature are attached hereto as  Exhibit D ; or (ii) upon receipt of such other form of instructions as the Client may from time to time authorize in writing and which the Custodian agrees to accept.
     The Custodian shall have the right to assume in the absence of notice to the contrary from the Client that any person whose name is on file with the Custodian pursuant to this Section has been authorized by the Client to give the Instructions in question and that such authorization has not been revoked. The Custodian may act upon and conclusively rely on, without any liability to the Client or any other person or entity for any losses resulting therefrom, any Instructions reasonably believed by it to be furnished by the proper person or persons as provided above.
     10. Standard of Care. The Custodian shall be responsible for the performance of only such duties as are set forth herein or contained in Instructions given to the Custodian which are within the scope of its duties and not contrary to the provisions of this Agreement. The
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Custodian will comply with the requirements of any law or regulation (including the 1940 Act) that is applicable to the duties to be performed by the Custodian under this Agreement. The Custodian will not be liable to the Client for any losses, damages, costs and expenses or other liabilities of any kind or nature incurred by the Client and arising out of the safekeeping of Property in the Account or the carrying out of the Custodian’s obligations under this Agreement except to the extent such losses, damages, costs, expenses or other liabilities were caused by the Custodian’s gross negligence, bad faith or willful misconduct. The Custodian shall not be responsible for the title, validity or genuineness of any Property or other property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon, and may conclusively rely on, without liability for any loss resulting therefrom, any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed or furnished by the proper party or parties, including, without limitation, Instructions. The Client shall indemnify, defend and hold harmless the Custodian and its affiliates, officers, directors and employees for any losses, damages, costs and expenses (including, without limitation, the fees and expenses of counsel) and other liabilities of any kind or nature incurred by any such person and arising out of any action taken or omitted by the Custodian hereunder or otherwise arising directly or indirectly out of or in connection with this Agreement;  provided that  the Client shall not be obligated to indemnify, defend or hold harmless any such person as a result of such person’s gross negligence, bad faith or willful misconduct. With respect to a Securities System, the Custodian shall only be responsible or liable for losses arising from employment of such Securities System caused by the Custodian’s gross negligence, bad faith or willful misconduct. In the event of any loss to the Client by reason of the gross negligence, bad faith or willful misconduct of the Custodian or its Sub-custodian, the Custodian shall be liable to the Client to the extent of the Client’s actual damages at the time such loss was discovered. To the extent that the Custodian obtains or provides market values of Securities in the Account to the Client, the Client hereby acknowledges that the Custodian now obtains and will in the future obtain information on such values from outside sources which the Custodian deems to be reliable, and confirms that the Custodian does not verify nor represent or warrant either the accuracy or the completeness of any such information furnished, and the Custodian shall be without liability in selecting and using such sources and furnishing any information derived therefrom. In no event shall the Custodian be liable for any indirect, incidental, special, consequential or punitive damages. The Custodian shall be entitled to rely, and may act, on advice of counsel (who may be counsel for the Client) on all matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice.
     In the event the Client subscribes to the Electronic On-Line System, the Client shall be fully responsible for the security of the Client’s connecting terminal, access thereto and the proper and authorized use thereof and the initiation and application of continuing effective safeguards and the Client agrees to defend, indemnify and hold the Custodian and its affiliates, officers, directors and employees harmless from and against any and all liabilities, losses, damages, costs, including attorneys’ fees and every other expense of every nature incurred by any such person as a result of any improper or unauthorized use of such terminal by the Client or by others on the Client’s premises.
     All collections of funds or other property paid or distributed in respect of Securities in the Account shall be made at the risk of the Client. Subject to the exercise of reasonable care, the Custodian shall have no liability for any loss occasioned by delay in the actual receipt of notice
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by the Custodian or by its Sub-custodian of any payment, redemption or other transaction regarding Securities in the Account in respect of which the Custodian has agreed to take action as provided in  Section 2  hereof. The Custodian shall not be liable for any loss resulting from, or caused by, acts of governmental authorities (whether  de jure  or  de facto ), including, without limitation, nationalization, expropriation, and the imposition of currency restrictions; acts of war, terrorism, insurrection or revolution; strikes or work stoppages; the inability of any clearing and settlement system to settle transactions for reasons beyond the control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption, nuclear fusion, fission, radioactivity or other acts of God.
     The Custodian shall have no liability in respect of any loss, damage or expense suffered by the Client, insofar as such loss, damage or expense arises from the performance of the Custodian’s duties hereunder by reason of the Custodian’s reliance upon records that were maintained for the Client by entities other than the Custodian prior to the Custodian’s employment under this Agreement.
     The provisions of this section shall survive termination of this Agreement.
     11. Investment Limitations and Legal or Contractual Restrictions or Regulations. The Custodian shall not be liable to the Client and the Client agrees to indemnify the Custodian and its nominees, affiliates, officers, directors and employees for any loss, damage or expense suffered or incurred by any such person arising out of any violation of any investment restriction or other restriction or limitation applicable to the Client pursuant to any contract or any law or regulation. The provisions of this Section shall survive termination of this Agreement.
     12. Fees and Expenses. The Client agrees to pay to the Custodian annual compensation for its services pursuant to this Agreement, payable in periodic installments at the rates in effect at the time of payment, together with the Custodian’s out-of-pocket or incidental expenses in connection with the performance of this Agreement, including, without limitation, attorneys’ fees, such amounts to be automatically debited by the Custodian from an account listed on  Exhibit A  as designated by the Client, or such other account that the Client holds at Bank of America as designated by the Client. The initial fee schedule is set forth in  Exhibit E  attached hereto. Except where longer notice may be required by applicable law, Custodian shall notify Client at least thirty (30) days in advance of any change in Custodian’s rates of compensation. Such fees will not be abated by, nor shall the Custodian be required to account for, any profits or commissions received by the Custodian in connection with its provision of custody services under this Agreement. The Client hereby agrees to hold the Custodian harmless from any liability or loss resulting from any taxes or other governmental charges, and any expense related thereto, which may be imposed, or assessed with respect to any Property in the Account and also agrees to hold the Custodian, its Sub-custodians, and their respective nominees harmless from any liability as record holder of Property in the Account. The Custodian is authorized to charge the Account for such items. Any fees or expenses invoiced to the Client which become past due for ninety (90) days or longer may be deducted by the Custodian from any Cash in the Account. The Custodian may charge the checking account of the Client maintained with the Custodian for any fees, expenses, charges or disbursements payable by the Client to the Custodian to the extent the money in the Account shall be insufficient therefor. If an Account is terminated during the first year, it is understood that a full year’s fee will be
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charged, but after the first year the fee will be prorated to the date of closing. The provisions of this Section shall survive the termination of this Agreement.
     13. Amendment, Modifications, etc. The Custodian may amend this Agreement in whole or in part by an instrument delivered to Client thirty (30) days prior to the effective date of such amendment and Client’s continued use of the Custodian’s services under this Agreement shall constitute Client’s acceptance of the terms of the Custodian’s amendment. Client may amend this Agreement in whole or in part by an instrument signed by the Client and the Custodian. No waiver of any provision hereto shall be deemed a continuing waiver unless it is so designated. No failure or delay on the part of either party in exercising any power or right under this Agreement operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right.
     14. Termination. This Agreement may be terminated by the Client by thirty (30) days’ written notice or by the Custodian upon thirty (30) days’ written notice;  provided that  notice by the Client shall specify the names of the persons to whom the Custodian shall deliver the Securities and Cash in the Account. If notice of termination is given by the Custodian, the Client shall, within thirty (30) days following the giving of such notice, deliver to the Custodian a written notice specifying the names of the persons to whom the Custodian shall deliver the Securities and Cash in the Account. The Custodian will deliver such Securities and pay such Cash to the persons so specified, after payment of any undisputed fees and costs which the Custodian determines to be owed to it under this Agreement. In addition, the Custodian may in its sole discretion withhold from such delivery such Cash and Securities as may be necessary to settle transactions pending at the time of such delivery. If, within thirty (30) days following the giving of a notice of termination by the Custodian, the Custodian does not receive from the Client a written notice specifying the names of the persons to whom the Custodian shall deliver the Securities in the Account and to whom the Cash in the Account shall be paid, the Custodian, at its election, may deliver such Securities and pay such Cash to a bank or trust company doing business in the State of Illinois to be held and disposed of pursuant to the provisions of this Agreement, or may continue to hold such Securities and Cash until a written notice as aforesaid is delivered to the Custodian, provided that the Custodian’s obligations shall be limited to safekeeping Property.
     15. Notices. Except as otherwise provided in this Agreement, all requests, demands or other communications between the parties or notices in connection herewith: (a) shall be in writing, hand delivered or sent by registered mail, email or facsimile addressed to such address as shall have been furnished by the receiving party and attached hereto as  Exhibit C  and (b) shall be deemed effective when received, or, in the case of a email and facsimile, when sent to the proper number and acknowledged by a proper confirmation.
     16. Representations and Warranties.
     (a) The Client hereby represents and warrants to the Custodian that:
          (i) the employment of the Custodian and the allocation of fees, expenses and other charges to the Account as herein provided is not prohibited by law or any governing documents or contracts to which it is subject;
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          (ii) the terms of this Agreement do not violate any obligation by which it is bound, whether arising by contract, operation of law or otherwise;
          (iii) this Agreement has been duly authorized by appropriate action and when executed and delivered will be binding upon it in accordance with its terms;
          (iv) it will deliver to the Custodian a duly executed Secretary’s Certificate in the form of Exhibit F attached hereto or such other evidence of such authorization as the Custodian may reasonably require, whether by way of a certified resolution or otherwise; and
          (v) it will deliver to the Custodian the items identified on Exhibit I hereto or such other evidence of identity as the Custodian may reasonably require.
     (b) The Custodian hereby represents and warrants to the Client (i) that this Agreement has been duly authorized by appropriate action and when executed and delivered will be binding upon it in accordance with its terms, and (ii) it is qualified to act as a custodian pursuant to Section 26(a)(1) of the 1940 Act..
     17. Governing Law. This Agreement shall be governed by the law of the State of New York.
     18. Submission to Jurisdiction. To the extent, if any, to which the Client or any of its properties may be deemed to have or hereafter to acquire immunity, on the ground of sovereignty or otherwise, from judicial process or proceeding to enforce this Agreement or to collect amounts due hereunder (including, without limitation, attachment proceedings prior to judgment or in aid of execution) in any jurisdiction, the Client hereby waives such immunity and agrees not to claim the same. Any suit, action or proceeding arising out of this Agreement may be instituted in any State or Federal court sitting in the City of New York, the State of New York, United States of America, and the Client irrevocably submits to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding and waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding was brought in an inconvenient forum. The Client further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified air mail return receipt requested, postage prepaid, to the Client at its address specified herein for notices or in any other manner permitted by law. Both parties waive all rights to a trial by jury in any action or proceeding relating to this Agreement.
     19. Confidentiality. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto shall be used by the other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party;  provided ,  however , that the Custodian may disclose such information to its affiliates and its and their respective employees, officers, directors, legal counsel, accountants, auditors and other representatives and advisors who are informed by the Custodian of the confidential nature of
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such information and are directed by the Custodian to treat such information in a manner consistent with the terms of this Agreement. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required or requested to be disclosed by any bank or other regulatory examiner of the Custodian, Client, or any Sub-custodian, any auditor of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation. The provisions of this Section shall survive the termination of this Agreement.
     20. Severability. If any provision of this Agreement is determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other provision of this Agreement.
     21. Entire Agreement. This Agreement, together with any exhibits attached hereto, contains the entire agreement between the parties relating to the subject matter hereof and supersedes any oral statements and prior writings with respect thereto.
     22. Headings. The headings of the paragraphs hereof are included for convenience of reference only and do not form a part of this Agreement.
     23. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by each of the parties hereto.
     24. Signature Authorization. The Client Signatories appearing below are duly authorized officers or agents of the Client. The Client shall deliver to the Custodian a duly executed Secretary’s Certificate in the form of  Exhibit F  hereto, or such other evidence of such authorization as the Custodian may reasonably require, whether by way of a certified resolution or otherwise.
     25. Successor and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the successors of each of the Client and the Custodian. This Agreement shall not be assigned by a party hereto without the prior express written consent of the other party. Notwithstanding the foregoing, any organization or entity resulting from any merger, conversion or consolidation to which the Custodian shall be a party and any organization or entity succeeding to all or substantially all of the corporate trust business of the Custodian shall be the successor Custodian hereunder without the execution or filing of any paper or any further act of any of the parties hereto.
     26. Tax Forms. The Account shall not be opened and funds in the Account shall not be invested unless the Client provides to the Custodian a properly completed and signed investment directive and applicable tax certification. In the case of a Person that is a “United States person” within the meaning of Section 7701(a)(30) of the Code, an Internal Revenue Service Form W-9 (or applicable successor form) is required. In the case of a Person that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code, the applicable Internal Revenue Service Form W-8ECI, W-8IMY, W-8EXP or W-8BEN (or applicable successor form), which needs to be an original, is required. The applicable Internal Revenue Service Form W-8ECI, W-8IMY, W-8EXP or W-8BEN will expire every three years and will
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need to be replaced with another properly completed and signed original sent to the Custodian at Bank of America, N.A., Global Securities Solutions—Tax Liaison Group, 540 West Madison Street, MAIL CODE IL4-540-18-04, Chicago, IL 60661. A new original Form W-8 and the applicable account number must be received by the Custodian prior to December 31, three years from the date of the previously submitted form or as required applicable by law. Tax withholding may occur absent proper tax documentation.
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     IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized signatories to execute this Agreement as of the date first written above.
 	 	 	 	 	
 	HORIZON TECHNOLOGY FINANCE
CORPORATION
as Client
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
 	BANK OF AMERICA, NATIONAL
ASSOCIATION , as Custodian
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	

Exhibit k(4)
FORM OF
EXCHANGE AGREEMENT
     THIS EXCHANGE AGREEMENT (the “Agreement”) is made and entered into as of ____________ ___, 2010, by and among Compass Horizon Partners, LP, an exempted limited partnership registered in Bermuda (“CHP”), HTF-CHF Holdings LLC, a Delaware limited liability company (“HTF-CHF” and collectively with CHP, the “Compass Horizon Owners” and each individually a “Compass Horizon Owner”), Compass Horizon Funding Company LLC, a Delaware limited liability company (“Compass Horizon”), and Horizon Technology Finance Corporation, a Delaware corporation entering into this Agreement through its board of directors before and in anticipation of the issuance of capital stock as contemplated herein (the “Company”). CHP, HTF-CHF, Compass Horizon and the Company are collectively the “Parties” and individually a “Party.”
BACKGROUND:
     The Compass Horizon Owners own, collectively, all of the issued and outstanding limited liability company interests (“Compass Horizon LLC Interests”) in Compass Horizon. Each Party: (a) has determined that, in connection with the anticipated initial public offering (the “IPO”) of shares of Common Stock of the Company (the “Common Stock”), it is in the best interests of each Party and its respective members and stockholders that all of the Compass Horizon LLC Interests be exchanged for Common Stock of the Company (the “Exchange”) so that, upon completion of the Exchange, the Company will own all of the issued and outstanding Compass Horizon LLC Interests and the Compass Horizon Owners will own all of the issued and outstanding Common Stock (which will be distributed after the Closing (as defined below) to the Compass Horizon Owners), and (b) has approved this Agreement. It is the intention of the Parties that no gain or loss be recognized for federal income tax purposes on the contribution and exchange of Compass Horizon LLC Interests for Common Stock pursuant to Section 351(a) of the Internal Revenue Code of 1986, as amended (the “Code”), except to the extent that a Compass Horizon Owner is treated as receiving money or “other property” in exchange for its Compass Horizon LLC Interests pursuant to Section 351(b) of the Code.
AGREEMENT:
     In consideration of the mutual promises and the terms and conditions set forth herein (the mutuality, adequacy and sufficiency of which are hereby acknowledged), the Parties hereby agree as follows:
     1. Effective Time; Closing. This Agreement shall be effective upon the execution and delivery of this Agreement by the Parties or at such later time as determined by the Parties (the “Effective Time”). The closing of the transactions contemplated hereby (the “Closing”) will take place at the Effective Time at such time and place as the Parties mutually agree.
     2. The Exchange Transaction.
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     (a) Exchange. At the Effective Time, in accordance with the terms and conditions of this Agreement, each of the Compass Horizon owners agrees to exchange all of its Compass Horizon LLC Interests for such number of shares of Common Stock, on an aggregate basis, as are set forth on  Exhibit A  (such shares of Common Stock issuable to the Compass Horizon Owners, the “Exchange Shares”), and the Company agrees to issue the Exchange Shares to the Compass Horizon Owners in exchange for all of their Compass Horizon LLC Interests. Each of the Compass Horizon Owners will receive that number of Exchange Shares as set forth on  Exhibit A . As of the Effective Time, the Compass Horizon LLC Interests shall remain issued and outstanding and owned by the Company.
     (b) Exchange Procedures, Etc. At the Closing, in consideration for the Compass Horizon LLC Interests, the Company shall deliver to each of the Compass Horizon Owners the Exchange Shares to be issued to such Compass Horizon Owner pursuant to Section 1(a), which delivery will be constructive and evidenced by the recording of ownership thereof in book-entry form on the records of the Company. The Exchange Shares shall not be certificated.
     4. Representations and Warranties of the Compass Horizon Owners. Each of the Compass Horizon Owners represents and warrants to the Company, severally and not jointly, as follows:
     (a) Authority. Such Compass Horizon Owner has the requisite power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by such Compass Horizon Owner. Assuming the valid authorization, execution and delivery of this Agreement by each other party to this Agreement, this Agreement and the transactions contemplated hereby are the valid and binding obligations of such Compass Horizon Owner, enforceable against such Compass Horizon Owner in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or the laws relating to or affecting creditors rights generally or by equitable principles.
     (b) Ownership of Compass Horizon LLC Interests. Schedule 4(b) attached hereto accurately sets forth the Compass Horizon LLC Interests held by such Compass Horizon Owner, and to such Compass Horizon Owner’s knowledge, there are no other owners of Compass Horizon LLC Interests. Except as set forth on  Schedule 4(b) , such Compass Horizon Owner has good and valid title to, and possesses full authority and legal right to sell, transfer and assign, its Compass Horizon LLC Interests, free of any liens, encumbrances or restrictions on transfer other than restrictions on transfer under applicable federal and state securities laws. There are no claims pending or, to the knowledge of such Compass Horizon Owner, threatened against such Compass Horizon Owner that concern or affect title to its Compass Horizon LLC Interests.
     (c) No Conflict. Neither the execution and deliver of this Agreement by such Compass Horizon Owner nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time): (i) conflict with any legal requirement or order of any court or governmental authority to which such Compass Horizon Owner is subject, or (ii) breach any provision of any contract to which such Compass Horizon Owner is a party, in each of the foregoing cases, where such conflict or breach would reasonably
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be expected to have a material adverse effect on the ability of such Compass Horizon Owner to consummate the transactions contemplated hereby. Such Compass Horizon Owner is not and will not be required to give any notice to or obtain any consent or approval from any person in connection with the execution and delivery of this Agreement or the consummation of the transactions under this Agreement.
     (d) Legal Proceedings; Orders. There are no legal proceedings or actions pending or, to the knowledge of such Compass Horizon Owner, threatened against such Compass Horizon Owner that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby. There are no orders pending or, to the knowledge of such Compass Horizon Owner, threatened against such Compass Horizon Owner that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
     5. Representations and Warranties of Compass Horizon. Compass Horizon represents and warrants to the Company as follows:
     (a) Authority. Compass Horizon has the requisite power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by Compass Horizon. Assuming the valid authorization, execution and delivery of this Agreement by each other party to this Agreement, this Agreement and the transactions contemplated hereby are the valid and binding obligations of Compass Horizon, enforceable against Compass Horizon in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or the laws relating to or affecting creditors rights generally or by equitable principles.
     (b) Ownership of Properties; Encumbrances. Compass Horizon has good and valid title to all of the material properties and assets (whether real, personal, or mixed and whether tangible or intangible) that it purports to own, including all of the properties and assets described in the Horizon Technology Finance Corporation Registration Statement (the “Registration Statement”) on Form N-2 originally filed with the Securities and Exchange Commission on March 19, 2010, as amended, free and clear of all liens and encumbrances other than any liens and/or encumbrances incurred in connection with the Credit and Security Agreement dated as of March 4, 2008 by and among Horizon Credit I LLC, WestLB AG, New York Branch, U.S. Bank National Association, as custodian and paying agent, and WestLB AG, New York Branch, as agent (the “WestLB Credit Facility”). There are no material claims pending or, to the knowledge of Compass Horizon, threatened against Compass Horizon that concern or affect title to its properties and assets as described in the Registration Statement.
     (c) No Conflict. Neither the execution and deliver of this Agreement by Compass Horizon nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time): (i) conflict with any legal requirement or order of any court or governmental authority to which Compass Horizon is subject, or (ii) breach any provision of any contract to which Compass Horizon is a party, in each of the foregoing cases, where such conflict or breach would reasonably be expected to have a material adverse effect on the ability of Compass Horizon to consummate the transactions contemplated hereby.
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Except for the consent required pursuant to the WestLB Credit Facility, Compass Horizon is not and will not be required to give any notice to or obtain any consent or approval from any person in connection with the execution and delivery of this Agreement or the consummation of the transactions under this Agreement.
     (d) Legal Proceedings; Orders. There are no legal proceedings or actions pending or, to the knowledge of Compass Horizon, threatened against Compass Horizon that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby. There are no orders pending or, to the knowledge of Compass Horizon, threatened against Compass Horizon that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
     6. Representations and Warranties of the Company. The Company represents and warrants to the Compass Horizon Owners and Compass Horizon as follows:
     (a) Organization and Good Standing; Capitalization. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct its business as it is now being conducted. As of the Effective Time, the Company’s authorized capital stock consists of 100,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. Immediately prior to the Effective Time. The Company has issued no capital stock.
     (b) Authority. This Agreement constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by the Company.
     (c) Valid Issuance of Exchange Shares. The Exchange Shares being issued hereunder have been duly and validly authorized, and will be duly and validly issued, fully paid and nonassessable after issuance to the Compass Horizon Owners pursuant to this Agreement, and will be free of any liens, encumbrances or restrictions on transfer other than restrictions on transfer under applicable federal and state securities laws.
     (d) No Conflict. Neither the execution and delivery of this Agreement by the Company nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time): (i) conflict with any legal requirement or order of any court or governmental authority to which the Company is subject, (ii) conflict with the Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws of the Company, or (iii) breach any provision of any contract to which the Company is a party, in each of the foregoing cases, where such conflict or breach would reasonably be expected to have a material adverse effect on the ability of the Company to consummate the transactions contemplated hereby. The Company is not and will not be required to give any notice to or
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obtain any consent or approval from any person in connection with the execution and delivery of this Agreement or the consummation of the transactions under this Agreement.
     (e) Legal Proceedings; Orders. There are no legal proceedings or actions pending or, to the knowledge of the Company, threatened against the Company that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby. There are no orders pending or, to the knowledge of the Company, threatened against the Company that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
     7. Deemed-Sale-Treatment Election by Certain Owners of Compass Horizon. Each Compass Horizon Owner represents and covenants that any partnership through which any foreign or domestic C corporation has a direct or indirect ownership interest in Compass Horizon will make a deemed-sale-treatment election under Treas. Reg. §§1.337(d)-7(c) and (e) in connection with the exchange of Compass Horizon LLC Interests for Common Stock. Each Compass Horizon Owner represents and covenants that the Company will be provided with information necessary for the Company to determine the net gain recognized as a result of any deemed-sale election made pursuant to this paragraph. The Company and each Compass Horizon Owner each represents and covenants that it and any foreign or domestic C corporation that made a deemed-sale election pursuant this paragraph will consistently report for United States federal income tax purposes any recognition of net gain or basis increase resulting from a deemed-sale election made pursuant to this paragraph.
     8. 351 Reporting Requirements under Section 351 of the Code. Each Compass Horizon Owner and the Company covenant that it will timely comply with any applicable reporting requirements relating to the significant transferors (i.e., Compass Horizon Owners who own at least five percent of the outstanding Common Stock after the IPO) in Treas. Reg. §1.351-3.
     9. Fractional Shares and Rounding. No fractional shares of Common Stock and no certificates or scrip therefore or other evidence of ownership thereof, will be issued; instead, the Company shall pay the amounts corresponding to such fractional shares in cash (without interest).
     10. Further Assurances. Upon the execution and delivery of this Agreement and thereafter, each of the Parties shall do such things and execute and deliver such documents as may be reasonably requested by the others in order to more effectively consummate or document the transactions contemplated by this Agreement.
     11. Waiver. No failure to exercise, and no delay in exercising, on the part of any Party, any privilege, power or right hereunder will operate as a waiver thereof, nor will any single or partial exercise of any such privilege, power or right preclude further exercise of any other privilege, power or right hereunder.
5

 
     12. Entire Agreement. This Agreement constitutes the entire agreement among the Parties with respect to its subject matter and supersedes all prior agreements between or among the Parties with respect to its subject matter.
     13. Assignment; Binding Effect; No Third Party Beneficiaries. This Agreement may not be assigned by any Party without the prior written consent of the other Parties. Subject to the foregoing, this Agreement will be binding upon and shall inure to the benefit of the Parties and their successors and permitted assignees. Nothing in this Agreement will be construed to give any person or entity other than the Parties any legal or equitable right under or with respect to this Agreement, except such rights as will inure to a successor or permitted assignee.
     14. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect.
     15. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts formed and to be performed entirely within the State of Delaware, without regard to the conflict of law provisions thereof to the extent such provisions would require or permit the application of the laws of another jurisdiction.
     16. Execution of Agreement; Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
     17. Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and must be delivered (a) personally, (b) by facsimile with confirmation of transmission by the transmitting equipment, or (c) by certified or registered mail (postage prepaid, return receipt requested), and will be deemed given when so delivered personally or by facsimile, or if mailed, three days after the date of mailing, to the addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a Party may designate by notice to the other Parties):
If to CHP:
Compass Horizon Partners, LP
c/o Navco Management Ltd., its General Partner
76 Batterson Park Road
Farmington, Connecticut 06032
Attention: Cora Lee Starzomski
Tel: (860) 676-8654
Fax: (860) 676-8655
If to HTF-CHF:
HTF-CHF Holdings LLC
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76 Batterson Park Road
Farmington, Connecticut 06032
Attention: Robert D. Pomeroy, Jr.
Tel: (860) 676-8654
Fax: (860) 676-8655
If to Compass Horizon:
Compass Horizon Funding Company LLC
c/o Compass Horizon Partners, LP, its Manager
c/o Navco Management Ltd., its General Partner
76 Batterson Park Road
Farmington, Connecticut 06032
Attention: Cora Lee Starzomski
Tel: (860) 676-8654
Fax: (860) 676-8655
If to the Company:
Horizon Technology Finance Corporation
76 Batterson Park Road
Farmington, Connecticut 06032
Attention: Robert D. Pomeroy, Jr.
Tel: (860) 676-8654
Fax: (860) 676-8655
[Signature page immediately follows.]
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     IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first written above.
 	 	 	 	 	
 	COMPASS HORIZON PARTNERS, LP
By: Navco Management Ltd., its General Partner
 	 	
 	By:  	 	 	
 	Name:  	 	 	
 	Title:  	 	 	

 	HTF-CHF HOLDINGS LLC
 	 	
 	By:  	 	 	
 	Name:  	 	 	
 	Title:  	 	 	

 	COMPASS HORIZON FUNDING
COMPANY LLC

By: Compass Horizon Partners, LP, its Manager
By: Navco Management Ltd., its General Partner
 	 	
 	By:  	 	 	
 	Name:  	 	 	
 	Title:  	 	 	

 	HORIZON TECHNOLOGY FINANCE CORPORATION
 	 	
 	By:  	 	 	
 	Name:  	 	 	
 	Title:  	 	 	

Exhibit (n)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Pre-Effective Amendment No. 3 to Registration Statement (No. 333-165570) on Form N-2 of Horizon Technology Finance Corporation of our report dated March 19, 2010, relating to our audits of the consolidated financial statements of Compass Horizon Funding Company LLC, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to our firm under the captions “Independent Registered Public Accounting Firm,” “Selected Financial and Other Data” and “Senior Securities” in such Prospectus.
/s/ McGladrey & Pullen, LLP
New Haven, Connecticut
July 19, 2010

Exhibit (r)(1)
CODE OF ETHICS
FOR
HORIZON TECHNOLOGY FINANCE CORPORATION
HORIZON TECHNOLOGY FINANCE MANAGEMENT LLC
Section I. Statement of General Fiduciary Principles
          This Code of Ethics (the “Code”) has been adopted by each of Horizon Technology Finance Corporation (the “Corporation”), and Horizon Technology Finance Management LLC, the Corporation’s investment adviser (the “Advisor”) in compliance with Rule 17j-1 under the Investment Company Act of 1940, as amended (the “Act”). The purpose of the Code is to establish standards and procedures for the detection and prevention of activities by which persons having knowledge of the investments and investment intentions of the Corporation may abuse their fiduciary duty to the Corporation, and otherwise to deal with the types of conflict of interest situations to which Rule 17j-1 is addressed.
          The Code is based on the principle that the directors and officers of the Corporation, and the managers, partners, officers and employees of the Advisor, who provide services to the Corporation, owe a fiduciary duty to the Corporation to conduct their personal securities transactions in a manner that does not interfere with the Corporation’s transactions or otherwise take unfair advantage of their relationship with the Corporation. All directors, managers, partners, officers and employees of the Corporation or the Advisor (collectively, the “Covered Personnel”) are expected to adhere to this general principle as well as to comply with all of the specific provisions of this Code that are applicable to them. Any Covered Personnel who is affiliated with another entity that is a registered investment adviser is, in addition, expected to comply with the provisions of the code of ethics that has been adopted by such other investment adviser. The Advisor has adopted a separate code of ethics pursuant to the Investment Advisers Act of 1940, and the rules thereunder (the “Advisor’s Code of Ethics”), which code of ethics has been approved by the Board of Directors of the Corporation, including a majority of the independent directors. The Advisor will provide a written report, at least annually, to the Corporation’s board of directors describing any issues arising under the Advisor’s Code of Ethics or procedures since the last report to the board, including, but not limited to, information about material violations of the Advisor’s Code of Ethics or procedures and sanctions imposed in response to material violations and certifying that the Advisor has adopted procedures reasonably necessary to prevent violations of the Advisor’s Code of Ethics.
          Technical compliance with the Code will not automatically insulate any Covered Personnel from scrutiny of transactions that show a pattern of compromise or abuse of the individual’s fiduciary duty to the Corporation. Accordingly, all Covered Personnel must seek to avoid any actual or potential conflicts between their personal interests and the interests of the Corporation and its shareholders. In sum, all Covered Personnel shall place the interests of the Corporation before their own personal interests.
          All Covered Personnel must read and retain this Code of Ethics.

 
Section II. Definitions
     (A) “Access Person” means any director, officer, general partner or Advisory Person (as defined below) of the Corporation or the Advisor.
     (B) An “Advisory Person” of the Corporation or the Advisor means: (i) any director, officer, general partner or employee of the Corporation or the Advisor, or any company in a Control (as defined below) relationship to the Corporation or the Advisor, who in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of any Covered Security (as defined below) by the Corporation, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (ii) any natural person in a Control relationship to the Corporation or the Advisor, who obtains information concerning recommendations made to the Corporation with regard to the purchase or sale of any Covered Security by the Corporation.
     (C) “Beneficial Ownership” is interpreted in the same manner as it would be under Rule 16a- 1 (a)(2) under the Securities Exchange Act of 1934 (the “1934 Act”) in determining whether a person is a beneficial owner of a security for purposes of Section 16 of the 1934 Act and the rules and regulations thereunder.
     (D) “Chief Compliance Officer” means the Chief Compliance Officer of the Corporation (who also may serve as the compliance officer of the Advisor and/or one or more affiliates of the Advisor).
     (E) “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the Act.
     (F) “Covered Security” means a security as defined in Section 2(a)(36) of the Act, which includes: any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
          Except that “Covered Security” does not include: (i) direct obligations of the Government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by open-end investment companies registered under the Act. References to a Covered Security in this Code (e.g., a prohibition or requirement applicable to the purchase or sale of a Covered Security) shall be deemed to refer to and to include any warrant for, option in, or security immediately convertible into that Covered Security, and shall
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also include any instrument that has an investment return or value that is based, in whole or in part, on that Covered Security (collectively, “Derivatives”). Therefore, except as otherwise specifically provided by this Code: (i) any prohibition or requirement of this Code applicable to the purchase or sale of a Covered Security shall also be applicable to the purchase or sale of a Derivative relating to that Covered Security; and (ii) any prohibition or requirement of this Code applicable to the purchase or sale of a Derivative shall also be applicable to the purchase or sale of a Covered Security relating to that Derivative.
     (G) “Independent Director” means a director of the Corporation who is not an “interested person” of the Corporation within the meaning of Section 2(a)(19) of the Act.
     (H) “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933 (the “1933 Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act.
     (I) “Investment Personnel” of the Corporation or the Advisor means: (i) any employee of the Corporation or the Advisor (or of any company in a Control relationship to the Corporation or the Advisor) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Corporation; and (ii) any natural person who controls the Corporation or the Advisor and who obtains information concerning recommendations made to the Corporation regarding the purchase or sale of securities by the Corporation.
     (J) “Limited Offering” means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) thereof or pursuant to Rule 504, Rule 505, or Rule 506 thereunder.
     (K) “Security Held or to be Acquired” by the Corporation means: (i) any Covered Security which, within the most recent 15 days: (A) is or has been held by the Corporation; or (B) is being or has been considered by the Corporation or the Advisor for purchase by the Corporation; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in Section II (K)(i).
     (L) “17j-1 Organization” means the Corporation or the Advisor, as the context requires.
Section III. Objective and General Prohibitions
          Covered Personnel may not engage in any investment transaction under circumstances in which the Covered Personnel benefits from or interferes with the purchase or sale of investments by the Corporation. In addition, Covered Personnel may not use information concerning the investments or investment intentions of the Corporation, or their ability to influence such investment intentions, for personal gain or in a manner detrimental to the interests of the Corporation.
          Covered Personnel may not engage in conduct that is deceitful, fraudulent or manipulative, or that involves false or misleading statements, in connection with the purchase or sale of investments by the Corporation. In this regard, Covered Personnel should recognize that
3

 
Rule 17j-1 makes it unlawful for any affiliated person of the Corporation, or any affiliated person of an investment adviser for the Corporation, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Corporation to:
          (i) employ any device, scheme or artifice to defraud the Corporation;
          (ii) make any untrue statement of a material fact to the Corporation or omit to state to the Corporation a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
          (iii) engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Corporation; or
          (iv) engage in any manipulative practice with respect to the Corporation.
          Covered Personnel should also recognize that a violation of this Code or of Rule 17j-1 may result in the imposition of: (1) sanctions as provided by Section VIII below; or (2) administrative, civil and, in certain cases, criminal fines, sanctions or penalties.
Section IV. Prohibited Transactions
     (A) Other than securities purchased or acquired by a fund affiliated with the Corporation and pursuant to an exemptive order under Section 57(i) of the Act permitting certain types of co-investments, an Access Person may not purchase or otherwise acquire direct or indirect Beneficial Ownership of any Covered Security, and may not sell or otherwise dispose of any Covered Security in which he or she has direct or indirect Beneficial Ownership, if he or she knows or should know at the time of entering into the transaction that: (1) the Corporation has purchased or sold the Covered Security within the last 15 calendar days, or is purchasing or selling or intends to purchase or sell the Covered Security in the next 15 calendar days; or (2) the Advisor has within the last 15 calendar days considered purchasing or selling the Covered Security for the Corporation or within the next 15 calendar days intend to consider purchasing or selling the Covered Security for the Corporation.
     (B) Investment Personnel of the Corporation or the Advisor must obtain approval from the Corporation or the Advisor, as the case may be, before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering, except when such securities are acquired by a fund affiliated with the Corporation and pursuant to an exemptive order under Section 57(i) of the Act permitting certain types of co-investments. Such approval must be obtained from the Chief Compliance Officer, unless he is the person seeking such approval, in which case it must be obtained from the Chief Executive Officer or President of the 17j-1 Organization.
     (C) No Access Person shall recommend any transaction in any Covered Securities by the Corporation without having disclosed to the Chief Compliance Officer his or her interest, if any, in such Covered Securities or the issuer thereof, including: the Access Person’s Beneficial Ownership of any Covered Securities of such issuer, except when such securities transactions are to be made by a fund affiliated with the Corporation and pursuant to an exemptive order under Section 57(i) of the Act permitting certain types of co-investments; any contemplated transaction
4

 
by the Access Person in such Covered Securities; any position the Access Person has with such issuer; and any present or proposed business relationship between such issuer and the Access Person (or a party which the Access Person has a significant interest).
Section V. Reports by Access Persons
     (A) Personal Securities Holdings Reports.
          All Access Persons shall within 10 days of the date on which they become Access Persons, and thereafter, within 30 days after the end of each calendar year, disclose the title, number of shares and principal amount of all Covered Securities in which they have a Beneficial Ownership as of the date the person became an Access Person, in the case of such person’s initial report, and as of the last day of the year, as to annual reports. A form of such report, which is hereinafter called a “Personal Securities Holdings Report,” is attached as Schedule A. Each Personal Securities Holdings Report must also disclose the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person or as of the last day of the year, as the case may be. Each Personal Securities Holdings Report shall state the date it is being submitted.
     (B) Quarterly Securities Transaction Reports.
          Within 30 days after the end of each calendar quarter, each Access Person shall make a written report to the Chief Compliance Officer of all transactions occurring in the quarter in a Covered Security in which he or she had any Beneficial Ownership. Such report, which is hereinafter called a “Quarterly Securities Transaction Report,” shall be in the form of Schedule B attached hereto or such other form approved by the Chief Compliance Officer and must contain the following information with respect to each reportable transaction:
               (1) Date and nature of the transaction (purchase, sale or any other type of acquisition or disposition);
               (2) Title, interest rate and maturity date (if applicable), number of shares and principal amount of each Covered Security involved and the price of the Covered Security at which the transaction was effected;
               (3) Name of the broker, dealer or bank with or through whom the transaction was effected; and
               (4) The date the report is submitted by the Access Person.
     (C) Independent Directors.
          Notwithstanding the reporting requirements set forth in this Section V, an Independent Director who would be required to make a report under this Section V solely by reason of being a director of the Corporation is not required to file a Personal Securities Holding Report upon becoming a director of the Corporation or an annual Personal Securities Holding Report. Such an Independent Director also need not file a Quarterly Securities Transaction
5

 
Report unless such director knew or, in the ordinary course of fulfilling his or her official duties as a director of the Corporation, should have known that during the 15-day period immediately preceding or after the date of the transaction in a Covered Security by the director such Covered Security is or was purchased or sold by the Corporation or the Corporation or the Advisor considered purchasing or selling such Covered Security.
     (D) Access Persons of the Advisor.
          An Access Person of the Advisor need not make a Quarterly Securities Transaction Report if all of the information in the report would duplicate information required to be recorded pursuant to Rules 204-2(a)(12) or (13) under the Investment Advisers Act of 1940, as amended.
     (E) Brokerage Accounts and Statements.
          Access Persons, except Independent Directors, shall:
               (1) Within 30 days after the end of each calendar quarter, identify the name of the broker, dealer or bank with whom the Access Person established an account in which any securities were held during the quarter for the direct or indirect benefit of the Access Person and identify any new account(s) and the date the account(s) were established. This information shall be included on the appropriate Quarterly Securities Transaction Report;
               (2) Instruct the brokers, dealers or banks with whom they maintain such an account to provide duplicate account statements to the Chief Compliance Officer; and
               (3) On an annual basis, certify that they have complied with the requirements of (1) and (2) above.
     (F) Form of Reports.
          A Quarterly Securities Transaction Report may consist of broker statements or other statements that provide a list of all personal Covered Securities holdings and transactions in the time period covered by the report and contain the information required in a Quarterly Securities Transaction Report.
     (G) Responsibility to Report.
          Access Persons will be informed of their obligations to report; however, it is the responsibility of each Access Person to take the initiative to comply with the requirements of this Section V. Any effort by the Corporation, or by the Advisor and its affiliates, to facilitate the reporting process does not change or alter that responsibility. A person need not make a report hereunder with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control.
     (H) Where to File Reports.
6

 
          All Quarterly Securities Transaction Reports and Personal Securities Holdings Reports must be filed with the Chief Compliance Officer.
     (I) Disclaimers.
          Any report required by this Section V may contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect Beneficial Ownership in the Covered Security to which the report relates. Transactions and holdings reports and all brokerage statements will be maintained in confidence, except to the extent necessary to implement and enforce the provisions of the Code or to comply with request for information from government agencies.
Section VI. Additional Prohibitions
     (A) Confidentiality of the Corporation’s Transactions.
          Until disclosed in a public report to shareholders or to the Securities and Exchange Commission in the normal course, all information concerning the securities “being considered for purchase or sale” by the Corporation shall be kept confidential by all Covered Personnel and disclosed by them only on a “need to know” basis. It shall be the responsibility of the Chief Compliance Officer to report any inadequacy found in this regard to the directors of the Corporation.
     (B) Outside Business Activities and Directorships.
          Access Persons may not engage in any outside business activities that may give rise to conflicts of interest or jeopardize the integrity or reputation of the Corporation. Similarly, no such outside business activities may be inconsistent with the interests of the Corporation. All directorships of public or private companies held by Access Persons shall be reported to the Chief Compliance Officer.
     (C) Gratuities.
          Corporation Personnel shall not, directly or indirectly, take, accept or receive gifts or other consideration in merchandise, services or otherwise of more than nominal value from any person, firm, corporation, association or other entity other than such person’s employer that does business, or proposes to do business, with the Corporation.
Section VII. Annual Certification
     (A) Access Persons.
          Access Persons who are directors, managers, partners, officers or employees of the Corporation or the Advisor shall be required to certify annually that they have read this Code and that they understand it and recognize that they are subject to it. Further, such Access Persons shall be required to certify annually that they have complied with the requirements of this Code.
7

 
     (B) Board Review.
          No less frequently than annually, the Corporation and the Advisor must furnish to the Corporation’s board of directors, and the board must consider, a written report that: (A) describes any issues arising under this Code of Ethics or procedures since the last report to the board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to material violations; and (B) certifies that the Corporation or the Advisor, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the Code.
Section VIII. Sanctions
          Any violation of this Code shall be subject to the imposition of such sanctions by the 17j-1 Organization as may be deemed appropriate under the circumstances to achieve the purposes of Rule 17j-1 and this Code. The sanctions to be imposed shall be determined by the board of directors, including a majority of the Independent Directors, provided, however, that with respect to violations by persons who are directors, managers, partners, officers or employees of the Advisor (or of a company that controls the Advisor), the sanctions to be imposed shall be determined by the Advisor (or the controlling person thereof). Sanctions may include, but are not limited to, suspension or termination of employment, a letter of censure and/or restitution of an amount equal to the difference between the price paid or received by the Corporation and the more advantageous price paid or received by the offending person.
Section IX. Administration and Construction
     (A) The administration of this Code shall be the responsibility of the Chief Compliance Officer.
     (B) The duties of the Chief Compliance Officer are as follows:
               (1) Continuous maintenance of a current list of the names of all Access Persons with an appropriate description of their title or employment, including a notation of any directorships held by Access Persons who are officers or employees of the Advisor or of any company that controls the Advisor, and informing all Access Persons of their reporting obligations hereunder;
               (2) On an annual basis, providing all Covered Personnel a copy of this Code and informing such persons of their duties and obligations hereunder including any supplemental training that may be required from time to time;
               (3) Maintaining or supervising the maintenance of all records and reports required by this Code;
               (4) Reviewing all Personal Securities Holdings Reports and Quarterly Securities Transaction Reports;
8

 
               (5) Preparing listings of all transactions effected by Access Persons who are subject to the requirement to file Quarterly Securities Transaction Reports and reviewing such transactions against a listing of all transactions effected by the Corporation;
               (6) Issuance either personally or with the assistance of counsel as may be appropriate, of any interpretation of this Code that may appear consistent with the objectives of Rule 17j-1 and this Code;
               (7) Conduct such inspections or investigations as shall reasonably be required to detect and report, with recommendations, any apparent violations of this Code to the board of directors of the Corporation;
               (8) Submission of a report to the board of directors of the Corporation, no less frequently than annually, a written report that describes any issues arising under the Code since the last such report, including but not limited to the information described in Section VII (B); and
     (C) The Chief Financial Officer shall maintain and cause to be maintained in an easily accessible place at the principal place of business of the 17j-1 Organization, the following records and must make these records available to the Securities and Exchange Commission at any time and from time to time for reasonable periodic, special or other examinations:
               (1) A copy of all codes of ethics adopted by the Corporation or the Advisor and its affiliates, as the case may be, pursuant to Rule 17j-1 that have been in effect at any time during the past five (5) years;
               (2) A record of each violation of such codes of ethics and of any action taken as a result of such violation for at least five (5) years after the end of the fiscal year in which the violation occurs;
               (3) A copy of each report made by an Access Person for at least two (2) years after the end of the fiscal year in which the report is made, and for an additional three (3) years in a place that need not be easily accessible;
               (4) A copy of each report made by the Chief Compliance Officer to the board of directors for two (2) years from the end of the fiscal year of the Corporation in which such report is made or issued and for an additional three (3) years in a place that need not be easily accessible;
               (5) A list of all persons who are, or within the past five (5) years have been, required to make reports pursuant to the Rule and this Code of Ethics, or who are or were responsible for reviewing such reports;
               (6) A copy of each report required by Section VII (B) for at least two (2) years after the end of the fiscal year in which it is made, and for an additional three (3) years in a place that need not be easily accessible; and
9

 
               (7) A record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Personnel of securities in an Initial Public Offering or Limited Offering for at least five (5) years after the end of the fiscal year in which the approval is granted.
     (D) This Code may not be amended or modified except in a written form that is specifically approved by majority vote of the Independent Directors.
     This Code of Ethics initially was adopted and approved by the Board of Directors of the Corporation, including a majority of the Independent Directors, at a meeting on July 8, 2010.
10

 
SCHEDULE A
PERSONAL SECURITIES HOLDINGS REPORT
     (1) I have read and understand the Code of Ethics of each of Horizon Technology Finance Corporation and Horizon Technology Finance Management LLC (the “Code”), recognize that the provisions of the Code apply to me and agree to comply in all respects with the procedures described therein. Furthermore, if during the past calendar year I was subject to the Code, I certify that I complied in all respects with the requirement of the Code as in effect during that year. Without limiting the generality of the foregoing, I certify that I have identified all new securities accounts established during each calendar quarter.
     (2) I also certify that the following securities brokerage and commodity trading accounts are the only brokerage or commodity accounts in which I trade or hold Covered Securities in which I have a direct or indirect Beneficial Ownership interest, as such terms are defined by the Code, and that I have requested that the firms at which such accounts are maintained send duplicate account statements to the Chief Compliance Officer.
 	 	 	 	 	 	 	 	 	
Title of	 	 	 	 	 	Broker,	 	 	
Covered Security	 	Number of Shares	 	Principal Amount	 	Dealer of Bank	 	Date Opened	

 	 	 	 	 	 	 	 	 	

 	

 	 	 	 	 	 	 	 	 	
 	 	Date of Report:	 	 	 	Print Name:	 	 	

 	 	Date
Submitted:	 	 	 	Signature:	 	 	

 
SCHEDULE B
QUARTERLY SECURITIES TRANSACTION REPORT
     The following lists all transactions in Covered Securities, in which I had any direct or indirect Beneficial Ownership interest, that were effected during the last calendar quarter and required to be reported by Section V (A) of the Code. (If no such transactions took place write “NONE”) Please sign and date this report and return it to the Chief Compliance Officer no later than the 10th day of the month following the end of the quarter. Use reverse side if additional space if needed.
PURCHASES AND ACQUISITIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	No. of	 	 	 	 	 	 	 	 	 	 	
 	 	Shares or Principal	 	Interest Rate and	 	 	 	 	 	 	 	Broker, Dealer, or	
Trade Date	 	Amount	 	Maturity Date	 	Name of Security	 	Unit Price	 	Total Price	 	Bank	

 	 	 	 	 	 	 	 	 	 	 	 	 	

 	
SALES AND OTHER DISPOSITIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	No. of	 	 	 	 	 	 	 	 	 	 	
 	 	Shares or Principal	 	Interest Rate and	 	 	 	 	 	 	 	Broker, Dealer, or	
Trade Date	 	Amount	 	Maturity Date	 	Name of Security	 	Unit Price	 	Total Price	 	Bank	

 	 	 	 	 	 	 	 	 	 	 	 	 	

 	
NEW ACCOUNTS ESTABLISHED DURING THE QUARTER
 	 	 	 	 	
Name of Broker,	 	Name of Account	 	 	
Dealer or Bank	 	and Account Number	 	Date Established	

 	 	 	 	 	

 	

Date of Report:	 	 	 	Name (please print):	 	 	

Date Submitted:	 	 	 	Signature:	 	 	

 
Horizon Technology Finance Management LLC
 	 	 	
To:	 	Board of Directors of Horizon Technology Finance Corporation	
 	 	 	
From:	 	Horizon Technology Finance Corporation	
 	 	 	
Date:	 	 	
 	 	 	
Re:	 	Certification of Code of Ethics	
     Horizon Technology Finance Corporation hereby certifies that it has adopted procedures reasonably necessary to prevent its “access persons” (as defined in Rule 17j-1 under the Investment Company Act of 1940, as amended) from violating its Code of Ethics.

 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	

Exhibit (r)(2)
CODE OF ETHICS AND PERSONAL TRADING POLICY

Horizon Technology Finance Management LLC
Code of Ethics
     The Investment Advisers Act of 1940 (the “Act”) imposes a fiduciary duty on investment Advisors. As a fiduciary, Horizon Technology Finance Management LLC (the “Firm”) has a duty of utmost good faith to act solely in the best interests of its clients. Clients entrust us with their money and financial future, which in turn places a high standard on our conduct and integrity. The Firm’s fiduciary duty compels all Supervised Persons to act with the utmost integrity in all of their dealings with clients and is the core principle underlying this Code of Ethics and Personal Trading Policy (the “Code”). It also represents the expected basis for all dealings with clients (current, prospective and former).
Standards of Conduct
     This Code of Ethics consists of the following core principles:
 	1.	 	The interests of clients will be placed ahead of the Firm’s or any Supervised Person’s own investment interests at all times.	
 	 	 	 	
 	2.	 	Supervised Persons are expected to conduct their personal securities transactions in accordance with the Firm’s Personal Trading Policy and must avoid any actual or perceived conflict of interest with clients. Anyone with questions regarding the appearance of a conflict with a client should consult with the Chief Compliance Officer (CCO) before taking action that may result in an actual conflict.	
 	 	 	 	
 	3.	 	Supervised Persons will avoid any abuse of their position of trust and responsibility.	
 	 	 	 	
 	4.	 	No Supervised Person will take inappropriate advantage of their position within the Firm.	
 	 	 	 	
 	5.	 	Supervised Persons are expected to act in the best interests of all clients of the Firm.	
 	 	 	 	
 	6.	 	The fiduciary principle that independence in the investment decision-making process is paramount.	
 	 	 	 	
 	7.	 	Supervised Persons are expected to comply with federal and all other applicable securities laws. Strict adherence to these policies and other policies and procedures of the Firm will assist everyone in complying with this important requirement.	
 	 	 	 	
 	8.	 	Information concerning the identity of security holdings and financial circumstances of all clients is confidential.	

 
     As part of the required standards of conduct, Supervised Persons are not permitted, in connection with the purchase or sale, directly or indirectly, of a security held or to be acquired by a client:
 	1.	 	To defraud such client in any manner;	
 	 	 	 	
 	2.	 	To mislead such client, including by making a statement that omits material facts;	
 	 	 	 	
 	3.	 	To engage in any act, practice or course of conduct which operates or would operate as a fraud or deceit upon such client;	
 	 	 	 	
 	4.	 	To engage in any manipulative practice with respect to such client; or	
 	 	 	 	
 	5.	 	To engage in any manipulative practice with respect to securities, including price manipulation.	
     Compliance with this fiduciary duty can be achieved by trying to avoid conflicts of interest and by fully disclosing all material facts concerning any conflict that does arise with respect to any client.
     Failure to comply with the Firm’s Code may result in disciplinary action, up to and including termination of employment.
     The Firm’s Supervised Persons are expected to maintain a high level of ethics, integrity and professionalism in business and personal dealings. “Professionalism” means integrity, objectivity, independence where required, adherence to professional standards and applicable laws and regulations, and a demonstrated will to maintain and improve the quality of professional services and to withstand pressures, competitive and otherwise, to compromise on principles, standards and quality.
     We are entrusted by our clients with their assets and confidential information. To meet our obligations with that trust, we shall abide by the Prudent Investor Rule which requires a fiduciary to exercise reasonable care, skill and caution applied to investments in a portfolio not in isolation, but in the context of the portfolio as a whole and as part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the client. In making and implementing investment decisions, the fiduciary has a duty to diversify investments of the client unless, under the circumstances, it is not prudent to do so.
The Code Covers These Persons
     The Code covers all “Supervised Persons” of the Firm. In addition, the management of the Firm’s affiliate, Horizon Technology Finance Corporation (“Horizon”) has determined that Supervised Persons of Horizon shall also be subject to the Code. Supervised Persons include:
 	1.	 	Directors, officers, and partners of the firm (or other persons occupying a similar status or performing similar functions);	
 	 	 	 	
 	2.	 	Employees of the firm; and	
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 	3.	 	Any other person who provides advice on behalf of the firm and is subject to the Firm’s supervision and control.	
     In addition, a subset of Supervised Persons, known as “Access Persons” must comply with specific reporting requirements. Access Persons include any Supervised Person who
 	•	 	Has access to nonpublic information regarding any clients’ purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any fund the Advisor or its control affiliates manage; or	
 	 	 	 	
 	•	 	Is involved in making securities recommendations to clients, or has access to such recommendations that are nonpublic.	
Conflicts of Interest
     Conflicts among Client Interests. Conflicts of interest may arise where the Firm or its Supervised Persons have reason to favor the interests of one client over another client (e.g., larger accounts over smaller accounts; accounts compensated by performance fees over accounts compensated differently; accounts in which employees have made material personal investments; accounts of close friends or relatives of Supervised Persons). Favoritism of one group of clients over another is prohibited under the Code.
     Competing with Client Trades. The Code prohibits Access Persons from using knowledge about pending or currently considered securities transactions for clients to profit personally (directly or indirectly) as a result of such transactions, including by purchasing or selling such securities for their own, their family’s or their friends’ accounts or by relaying such information to others for their use.
     Disclosure of Personal Interest. Investment personnel are prohibited from recommending, implementing or considering any securities transaction for a client without first disclosing any material beneficial ownership, business or personal relationship, or other material interest in the issuer or its affiliates, to an appropriate designated person. This designated person for the Firm shall be the Chief Compliance Officer. If such designated person deems the disclosed interest to present a material conflict, the investment personnel may not participate in any decision-making process regarding the securities of that issuer.
Confidentiality
     All information concerning the identity of security holdings and financial circumstances of all clients (both current and former) or prospective clients is confidential.
     All information about clients must be kept in strict confidence, including the client’s identity (unless the client consents), the client’s financial situation, the client’s security holdings, and advice furnished to the client by the Firm.
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Protection of Material Non-public Information (i.e., Insider Trading)
     Supervised Persons are expected to exercise diligence and care in maintaining and protecting our clients’ nonpublic, confidential information.
     Supervised Persons are also expected not to divulge information regarding the Firm’s securities recommendations or client securities holdings to any individual outside of the Firm, except
 	1.	 	As necessary to complete transactions or account changes (for example, communications with brokers and custodians);	
 	 	 	 	
 	2.	 	As necessary to maintain or service a client or a client’s account;	
 	 	 	 	
 	3.	 	With various service providers providing administrative functions for the Firm (such as our technology service provider), only after we have entered into a contractual agreement that prohibits the service provider from disclosing or using confidential information except as necessary to carry out its assigned responsibilities and only for that purpose; or	
 	 	 	 	
 	4.	 	As permitted by law.	
     Additional procedures regarding the Firm’s Insider Trading restrictions may be found at the end of this document.
Personal Conduct
     As noted above, Supervised Persons are expected to conduct themselves with the utmost integrity and to avoid any actual or perceived conflict with our clients. In this spirit, the following are required of Supervised Persons:
     Acceptance of Gifts: The Firm’s overriding principle concerning gifts and gratuities is: Supervised Persons should not accept inappropriate gifts, favors, entertainment, special accommodations or other things of material value that could influence their decision-making or make them feel beholden to a person or firm.
     Supervised Persons are generally prohibited from giving or receiving any gift, gratuity, hospitality or other offering of more than de minimis value from any person of entity doing business with the Firm (De minimis is described as $100 per year.). Any Supervised Person who wishes to give, directly or indirectly, anything of value to any person or entity that does business with or on behalf of the Firm, including gifts and gratuities with value in excess of $100 per year, must obtain written consent from the CCO and Chief Financial Officer (the “CEO”), prior to giving such gift. Supervised Persons may accept unsolicited gifts (other than those prohibited above) provided each gift over $100 is promptly reported in writing to the CCO. Attendance at an outing or dinner with a representative of another firm does not require any report unless an overnight say is involved, in which case the Supervised Person must send details to the CCO in advance. The CCO shall maintain a log of all gift and event reports.
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     Service as Director for an Outside Company: Any Supervised Person wishing to serve as director for an outside company (public or private) must first seek the written approval of the CEO or President and the CCO. The CEO or President and the CCO, in reviewing the request, will determine whether such service is consistent with the interest of the Firm and our clients.
     Outside Business Interests: Any Supervised Person wishing to engage in business activities outside of the Firm’s business must first seek written approval from the CEO or President and the CCO and, if requested, provide periodic reports to the CEO or President and the CCO summarizing those outside business activities.
     Political Contributions: The Firm prohibits any Supervised Person from making a political contribution to gain, or to attempt to gain, an engagement for the Firm or any affiliate. The Firm is currently reviewing its Political Contributions policy and will communicate any final policy guidelines to all Supervised Persons when determined.
Personal Trading Restrictions
     Supervised Persons are expected to purchase or sell a security for their personal accounts only after determining there is no conflict of interest with the client accounts trading in the same security.
     All Supervised Persons of the Firm are restricted from trading in securities noted on “Restricted Securities List” maintained by the CCO. It is the responsibility of each Supervised Person to ensure that a particular securities transaction being considered for his or her personal account is not subject to a restriction.
     All Supervised Persons must obtain the prior written approval of the CCO before engaging in any securities transaction (purchases, sales, options trading, etc.) in a personal account using the Personal Trading Pre-clearance Form set forth as Exhibit A  to this Code. A copy of this form will also be available from the CCO.
     When a Supervised Person engages in a personal securities transaction, the Supervised Person shall direct that the executing broker send a duplicate copy of the confirmation to the CCO at the same time as it is provided to the Supervised Person. Such Supervised Persons shall also direct such broker to provide duplicate copies of any periodic statement on any account maintained by such person (or any other account in which such Supervised Person has a beneficial interest) to the CCO.
Personal Trading Policy
Matters for the Supervised Person to Consider Before Placing a Trade
 	1.	 	Will the amount or nature of the transaction affect the price or market for the security?	
 	 	 	 	
 	2.	 	Will you benefit from the purchases or sales being made for any client?	
 	 	 	 	
 	3.	 	Will your transaction harm any client?	
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 	4.	 	Is there an appearance or suggestion of impropriety?	
     If there is a chance the answer to any of these questions is “yes” you must include the information on your Pre- Clearance Form.
Initial Public Offerings and Limited or Private Offerings
     All Supervised Persons are required to obtain approval from the CEO or President before investing in an initial public offering (IPO) or a limited or private offering (i.e., limited or private partnership), defined as an equity position within a non-public company. The pre-approval includes all investments contemplated by investment personnel of the Firm.
Reports of Personal Securities
     Access Persons are required to report securities transactions and holdings for all accounts in which the Access Person has a direct or indirect beneficial ownership interest. 1  This includes personal securities information of any immediate family member 2 living within the same household as the Access Person. Personal securities reporting requirements do not include other individuals living in the Access Person’s household but Access Persons should be cognizant of the confidentiality of the business of the Firm.
Initial and Annual Holdings Report
     Each Access Person (which currently means each Supervised Person) must provide an initial holdings report to the CCO within 10 days of initial employment with the Firm and thereafter on an annual basis. The Form of this report is attached as Exhibit B  to this Code. In addition, all Access Persons are required to provide to the CCO brokerage statements (either directly from the broker-dealer or from the Access Person) which contain the information set forth below regarding all of the Access Person’s reportable personal holdings:
 	•	 	Security Name;	
 	 	 	 	
 	•	 	Ticker Symbol or CUSIP number;	
 	 	 	 	
 	•	 	Number of Shares or Par;	
 	 	 	 	
 	•	 	Principal Amount;	
 	 	 	 	
 	•	 	Broker or Bank Name; and	

1	 	A person has a Beneficial Ownership of a security if the person, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: 1. Voting power which includes the power to vote, or to direct the voting of, such security; and/or, 2. Investment power which includes the power to dispose, or to direct the disposition of, such security.	
 	 	 	
2	 	Immediate family means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.	
6

 
 	•	 	Date of Report.	
     Transactions and holdings reports and all brokerage statements will be maintained in confidence, except to the extent necessary to implement and enforce the provisions of the Code or to comply with request for information from government agencies.  The CCO or a designee of the CCO will review each report submitted as promptly as practicable. The CFO will review any report submitted by the CCO.
Quarterly Transactional Reports
     Each Access Person must also submit to the Firm’s CCO a quarterly report regarding their personal securities transactions in which they had a direct or indirect beneficial ownership interest, as discussed above.  This quarterly report is due 30 calendar days following each calendar quarter-end, and the report should be submitted using the form found in Exhibit C . In addition to the report set forth in  Exhibit C  Access Persons must submit to the CCO copies of monthly or quarterly brokerage statements (either directly from the broker- dealer or from the Access Person) reflecting all of the Access Person’s reportable personal securities transactions during the period. The brokerage statements must contain the information set forth below:
 	•	 	Trade Date;	
 	 	 	 	
 	•	 	Security Name;	
 	 	 	 	
 	•	 	Security Identification information, including as appropriate: ticker symbol or CUSIP number, interest rate and maturity date;	
 	 	 	 	
 	•	 	Number of Shares or Par;	
 	 	 	 	
 	•	 	Type of Transaction (Purchase, Sale or Other);	
 	 	 	 	
 	•	 	Price at which the transaction was executed;	
 	 	 	 	
 	•	 	Principal Amount;	
 	 	 	 	
 	•	 	Broker Name;	
 	 	 	 	
 	•	 	Date of Report; and	
 	 	 	 	
 	•	 	Account Number.	
     The CCO or a designee of the CCO will review each report submitted as promptly as practicable. The CFO will review any report submitted by the CCO. Securities not required to be reported may be found in Acceptable Personal Trades section.
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Acceptable Personal Trades and Exempt Transactions
     The following forms of securities may be freely held or traded by Access Persons, without regard to the Personal Trading Restrictions described above or the reporting requirements described in Reports of Personal Securities above. For these reasons, the following securities are considered safest from a regulatory perspective for an Access Person to purchase, sell or hold. Access Persons are therefore encouraged to conduct their personal transactions within the following types of acceptable securities and exempt transactions:
 	1.	 	Shares of open-end mutual funds not managed by the Firm (Note: trades in closed-end mutual funds or exchange traded funds must follow the Personal Trading Restrictions requirements described in this Code);	
 	 	 	 	
 	2.	 	Shares of any money market fund;	
 	 	 	 	
 	3.	 	Direct obligations of the United States Government;	
 	 	 	 	
 	4.	 	Money market instruments, including bankers’ acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high quality short-term debt;	
 	 	 	 	
 	5.	 	Any report with respect to securities held in accounts over which the Access Person has no direct or indirect influence or control (i.e., accounts managed by an outside investment Advisor on a discretionary basis); and	
 	 	 	 	
 	6.	 	Transactions effected pursuant to an automatic investment plan (including dividend reinvestment plans).	
Firm Review of Personal Transaction Reports
     The following factors will be considered when reviewing reportable security holdings and transactions and pre-clearance requests.
 	1.	 	Whether the investment opportunity should be directed to a client’s account;	
 	 	 	 	
 	2.	 	Whether the amount or nature of the transaction affected/will affect the price or market for the security;	
 	 	 	 	
 	3.	 	Whether the Access Person benefited or will benefit from purchases or sales being made for clients;	
 	 	 	 	
 	4.	 	Whether the transaction harmed/will harm any client; or	
 	 	 	 	
 	5.	 	Whether the transaction has the appearance of impropriety.	
     The CCO or a designee of the CCO will review each report submitted as promptly as practicable. The CFO will review any report submitted by the CCO. In no case should an Access Person review his/her own report.
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Code of Ethics and Personal Trading Policy Violations
     All Supervised Persons are required to report promptly any apparent or suspected violations of this policy to the CCO (including the discovery of any violation committed by another Supervised Person). Examples of items that should be reported include but are not limited to noncompliance with federal securities laws, conduct that is harmful to clients and purchasing securities contrary to the Personal Trading Policy. Such violations must be reported to the CCO on a timely basis. If the possible violation involves the CCO, you should report it directly to the President.
     Such reports by Supervised Persons will not be viewed negatively by Firm management, even if the reportable event, upon further review, is determined to not be a violation and CCO determined the Supervised Person reported such apparent violation in good faith.
     All reports will be treated with the utmost level of confidentiality. Retaliation by the Firm or any Supervised Person against anyone who reports a suspected violation is prohibited. Such attempted retaliation would be treated as a further violation of this Code.
Recordkeeping Policy
     We are subject to extensive recordkeeping requirements. Records must be maintained for a minimum of two years in The Firm’s home office and three additional years in an easily accessible place, for a total of five years. Certain records must be maintained for the life of the Firm.
     The following records shall be maintained for the required document retention period:
 	1.	 	A copy of each Code that has been in effect at any time during the last five years.	
 	 	 	 	
 	2.	 	A record of any violation of the Code and any action taken as a result of such violation of for five years from the end of the fiscal year in which the violation occurred.	
 	 	 	 	
 	3.	 	A record of all written acknowledgements of receipt of the Code and amendments for each person who is currently, or within the past five years was, a Supervised Person. (These records must be kept for five years after the individual ceases to be a Supervised Person of the Firm)	
 	 	 	 	
 	4.	 	Pre-Clearance Forms, holdings and transaction reports made pursuant to the Code, including any brokerage confirmation and account statements made in lieu of these reports.	
 	 	 	 	
 	5.	 	A list of the names of persons who currently, or within the past five years, were Access Persons or investment personnel.	
 	 	 	 	
 	6.	 	A record of any decision and supporting reasons for approving the acquisition of securities by Access Persons in limited offerings for at least five years after the end of the fiscal year in which approval was granted.	
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 	7.	 	A record of any decisions and supporting reasons that grant Supervised Persons or Access Persons a waiver from or exception to the Code.	
 	 	 	 	
 	8.	 	Copies of all reports provided to senior management regarding the annual review of the Code and a listing of any material violations.	
 	 	 	 	
 	9.	 	A record of persons responsible for reviewing the Access Persons reports currently and during the previous five years.	
Administration and Enforcement of the Code
Training and Education
     The Firm has designated the CCO of the Firm as the individual responsible for training and educating Supervised Persons regarding the Code. Training will occur periodically and all Supervised Persons are required to attend any training and/or read all applicable materials.
Annual Review
     The CCO must review at least annually the adequacy of the current Code as well as the effectiveness of its implementation. This report should be delivered to senior management including the Chairman. All material violations should be brought to the attention of senior management as well, in a timely manner.
New Employee Acknowledgement
     New employees must acknowledge they have read and understand and they must agree to comply with this Code of Ethics and Personal Trading Policy. This is done by completing  Exhibit D .
Annual and Amendment Acknowledgements
     All Supervised Persons are required to acknowledge annually that they have read, understand and agree to comply with the Code, in connection with the Firm’s annual policy acknowledgement process. This is done by completing  Exhibit D . Amendments will be distributed via e-mail and again, an acknowledgement must be completed and returned to the CCO via Exhibit D .
Sanctions
     Violations of the Code may result in disciplinary action against the Supervised Person. The disciplinary action may be whatever the CEO or President and CCO deem appropriate given the situation, and may include a written warning, fines, disgorgement of profits and/or losses avoided, suspension, demotion, or termination of employment. Violations may also be referred to civil or criminal authorities where appropriate.
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Further Information
     For further information regarding the Code of Ethics and Personal Trading Policy for Horizon Technology Finance Management LLC, please contact the CCO:
John C. Bombara
76 Batterson Park Road
Farmington, Connecticut 06032
jay@horizontechfinance.com
860-676-8657
Procedure for the Detection and Prevention of the Misuse of Material, Nonpublic Information
     In furtherance of the objectives of the Insider Trading and Securities Fraud Enforcement Act of 1988 (the Insider Trading Act), Advisor has established the following policies and procedures designed to detect and prevent the misuse of material, nonpublic information (as hereinafter defined). Given the potential liability to which both the Firm and its personnel are subject to under the Insider Trading Act, it is critical that all Supervised Persons thoroughly familiarize themselves with these procedures. Questions should be directed to the CCO.
Prohibition against Misuse of Material, Nonpublic Information
     SEC Rule 10b-5 makes it unlawful for any person to misuse, either directly or indirectly, any material, nonpublic information. Supervised Persons who are in possession of any material, nonpublic information are prohibited from:
 	1.	 	Purchasing or selling such securities for their own accounts or for accounts in which they have a beneficial interest or over which they have the power, directly or indirectly, to make investment decisions;	
 	 	 	 	
 	2.	 	Soliciting customers’ orders to purchase or sell the securities;	
 	 	 	 	
 	3.	 	Issuing research reports, recommendations or comments which could be construed as recommendations; and	
 	 	 	 	
 	4.	 	Disclosing such information or any conclusions based thereon to any other person in or outside the Firm, except as set forth herein.	
     “Material, non-public information” is any information which has not been publicly disseminated and which a reasonable investor might consider important in making an investment decision. Examples of the types of information that is likely to be deemed “material” include, but are not limited to, the following:
 	1.	 	Dividend increases or decreases;	
 	 	 	 	
 	2.	 	Earnings estimates or material changes in previously released earnings estimates;	
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 	3.	 	Significant expansion or curtailment of operations;	
 	 	 	 	
 	4.	 	Significant increase or decline in revenue;	
 	 	 	 	
 	5.	 	Significant merger or acquisition proposals or agreements, including tender offers;	
 	 	 	 	
 	6.	 	Significant new products or discoveries;	
 	 	 	 	
 	7.	 	Extraordinary borrowing;	
 	 	 	 	
 	8.	 	Major litigation;	
 	 	 	 	
 	9.	 	Liquidity problems;	
 	 	 	 	
 	10.	 	Extraordinary management developments; and	
 	 	 	 	
 	11.	 	Purchase and sale of substantial assets.	
     The Firm is engaged in an investment advisory practice on behalf of institutional clients, which may result in its receipt of material nonpublic information. It is good practice, therefore, to exercise caution in discussing one’s work with family, friends and colleagues. Discussions in the office should be limited based on a “need to know” basis. Substantive discussions should be avoided in restaurants, elevators and other public places where conversations may be overheard. Care should also be exercised in using, transporting and disposing of written materials, including drafts and notes. The following specific policies and procedures to prevent the dissemination of material, non-public information acquired in the course of the Firm’s business have been adopted and shall become effective immediately. These are collectively referred to in the securities industry as a “Chinese Wall.”
 	1.	 	Material, non-public information may not be communicated to any person except the CEO, President, CFO, CCO, Counsel for the Firm or other Supervised Persons whom the CEO or President and CFO determines need such information to carry out their professional responsibilities. Such persons must treat the information confidentially.	
 	 	 	 	
 	2.	 	All such material non-public information that is in written form should be kept in a confidential and private location at all times when not being used.	
 	 	 	 	
 	3.	 	If such information is computerized, access to the computer files and computerized information will be restricted only to those Supervised Persons approved by the CEO or President and the CFO.	
 	 	 	 	
 	4.	 	Aside from these procedures and policies, if a Supervised Person of the Firm obtains any information that he or she has any reason to believe may constitute material nonpublic information; such information should be brought immediately to the attention of the CEO, President or CFO and the CCO.	
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The CCO is responsible for all insider trading review and/or determinations. Nothing in this policy is to override the policies and procedures outlined in the Firm’s Code in effect at the time.
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EXHIBIT A
Horizon Technology Finance Management LLC
Personal Trading Pre-Clearance Form
     The Personal Trading Pre-Clearance Form documents that the proposed transaction is not a conflicting transaction. Pre-Clearance must be granted prior to placing a trade, and is only good for the day of the approval.
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	#OF SHARES/	 	 	 	 	 	 	
 	 	 	 	CONTRACTS/	 	TYPE OF	 	SECURITY	 	 	
SECURITY NAME	 	TICKER/CUSIP	 	PRINCIPAL	 	TRADE1	 	TYPE2	 	BROKER/CUSTODIAN	

 	 	 	
1.	 	Buy (B), Sell (S), Short (Sh), Covered Short (CS)	
 	 	 	
2.	 	Common Stock, Option, Debt, IPO/Limited Offering, Other For IPO trades, please provide Public Offering Date: _________	
I certify that,
 	1.	 	I have no inside information or other knowledge pertaining to this proposed transaction that constitutes a violation of Firm policy, confidentiality agreements or securities laws.	
 	 	 	 	
 	2.	 	I am not an officer, director or principal shareholder of the company and am not required to file any of the reports required by Section 16 of the Securities Exchange Act of 1934.	
 	 	 	 	
 	3.	 	Any transaction described above establishing a position in a Security is undertaken with the intention of holding such position for not less than thirty (30) days.	
 	 	 	 	
 	4.	 	For a Limited Offering or IPO: I certify and acknowledge the following:	

 	a.	 	I am not investing in this Limited Offering or IPO to profit improperly from my position as a Firm Supervised Person;	
 	 	 	 	
 	b.	 	The investment opportunity did not arise by virtue of my activities on behalf of a Firm client; and	
 	 	 	 	
 	c.	 	To the best of my knowledge, no Firm clients have any foreseeable interest in purchasing this Security;	

Supervised Person	 	 	 	(Print Name)	 	 	

Signed	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Date	

 
     By signing below, the individual verifies that the proposed transaction described above does not violate the Firm’s Personal Security Transaction Policy. Note: Two signatures are required for pre-clearance.

Chief Compliance Officer, Horizon	 	 	 	 	
Technology Finance Management LLC	 	 	 	Date	

[Chief Executive Officer/President], Horizon	 	 	 	 	
Technology Finance Management LLC	 	 	 	Date	

 
EXHIBIT B
Initial and Annual Reporting Form (Securities Accounts and Securities Holdings)
Supervised Person ___________________________(Print Name)
Information submitted current as of _______________________(Date)
     In accordance with Horizon Technology Finance Management LLC Code of Ethics and Personal Trading Policy, please provide a list of all securities accounts in which you have a beneficial interest. Note that this includes accounts of immediate family members living in your household. Use additional sheets as necessary.
 	 	 	 	 	
Name of Broker, Dealer or Bank	 	Account Title	 	Account Number	
 	 	 	 	 	
     In accordance with Horizon Technology Finance Management LLC Code of Ethics and Personal Trading Policy, please provide a list of all reportable securities in which you have a beneficial interest. This includes securities held by broker/dealers and other custodians, at your home, in safe deposit boxes, and by an issuer. Supervised Persons may submit their brokerage/custodial statements in lieu of listing all securities holdings.  Use additional sheets as necessary
 	 	 	 	 	 	 	 	 	
 	 	 	 	Type	 	Ticker or	 	 	
Number of Shares	 	 	 	(e.g., equity,	 	CUSIP (if	 	Principal Amount	
(if applicable)	 	Security Name	 	fixed income)	 	applicable)	 	(if applicable)	
 	 	 	 	 	 	 	 	 	
I certify that this form fully discloses all of the securities accounts in which I have a beneficial interest.
I certify that this form fully discloses all of the reportable securities in which I have a beneficial interest. Nothing in this report should be construed as an admission that the person making the report has any direct or indirect beneficial ownership in the securities contained in this report.

 
 	 	 	 	 	 	 	
 	 	Reviewed	 	 	
 	 	by:	 	 	 	 	
 	 	 	 	 	
Signature	 	Date of Review:	
 	 	 	 	 	 	 	
 	 	Exception(s) Noted: _______ No ________ Yes	
 	 	If Yes, Describe:	 	 	
  Date	 	 	 	 	 	 	

 
EXHIBIT C
Horizon Technology Finance Management LLC/Horizon
Quarterly Activity Report
Quarter Ended: ____________
Employee Name: ____________
Accounts:
Firm Name            Account Number
Trades:
Firm Name
Account Number
Trade Date
Ticker symbol/CUSIP number
Interest Rate
Maturity Date
Number of Shares or Par
Type of Transaction (Purchase, Sale or Other)
Price
Principal Amount
Outside Activities:
Outside Organization           Role Purpose/Description            Public Company (Y/N) Family?
Circle One and Sign Below:
 	 	 	
Yes	 	I acknowledge that the information on this report is accurate and complete.	
 	 	 	
No	 	The information in this report contains errors or is not complete. I acknowledge that I have supplied the correct information to the Firm’s CCO to update this report.	

 	 	 	
 	 	 	
Supervised Person Name	 	Date	

 
EXHIBIT D
ACKNOWLEDGMENT OF CODE OF ETHICS AND PERSONAL TRADING POLICY
Please indicate below whether this is an initial acknowledgement, an annual acknowledgement, or an acknowledgement of an amended Code of Ethics and Personal Trading Policy.
 	 	 	 	 	
______Initial	 	______Annual	 	______Amended	
You must review the Firm’s Code of Ethics and Personal Trading Policy before completing this Acknowledgment. Terms defined in the Code of Ethics and Personal Trading Policy have the same meanings in this Acknowledgment. You must give this Acknowledgment directly to the Chief Compliance Officer.
I REPRESENT AND CERTIFY THAT I HAVE RECEIVED, READ, UNDERSTOOD AND WILL COMPLY WITH THE CODE OF ETHICS AND PERSONAL TRADING POLICY AND UNDERSTAND THAT I AM SUBJECT TO THE CODE AND THE SANCTIONS DESCRIBED THEREIN. IF THIS IS AN ANNUAL CERTIFICATION, I FURTHER REPRESENT AND CERTIFY THAT I HAVE COMPLIED WITH THE CODE DURING THE PRECEDING YEAR.
Please direct questions regarding the completion of this Acknowledgment to the Chief Compliance Officer.

 	 	 	 	 	 	 	
 	 	 	 	 	 	Name of Supervised Person	
 	 	 	 	 	 	 	
Dated:	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	 	 	Signature of Supervised Person